<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Callaway Golf Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[CALLAWAY GOLF LOGO]
April 1, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of the Shareholders
of Callaway Golf Company, which will be held on Wednesday, May 5, 1999 at 2180
Rutherford Road, Carlsbad, California 92008 (near the Company's headquarters),
commencing at 10:00 a.m. A map is provided on the back page of these materials
for your reference. Your Board of Directors and management look forward to
greeting personally those shareholders able to attend.
At the meeting, in addition to electing 10 directors, your Board is asking
shareholders to approve the reincorporation of Callaway Golf Company as a
Delaware corporation and to approve the adoption of the Callaway Golf Company
1999 Employee Stock Purchase Plan. The reincorporation proposal does not
include the adoption of any new "anti-takeover" provisions. These proposals
are fully set forth in the accompanying proxy statement which you are urged to
read thoroughly. For the reasons set forth in the proxy statement, your Board
of Directors recommends a vote "FOR" each of the proposals.
It is important that your shares are represented and voted at the meeting
whether or not you plan to attend. Accordingly, you are requested to sign,
date and mail the enclosed proxy in the envelope provided at your earliest
convenience.
Thank you for your cooperation.
Sincerely,
/s/ Ely Callaway
Ely Callaway
Chairman of the Board and
Chief Executive Officer
<PAGE>
CALLAWAY GOLF COMPANY
2285 RUTHERFORD ROAD
CARLSBAD, CALIFORNIA 92008
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MEETING DATE: MAY 5, 1999
TO OUR SHAREHOLDERS:
The Annual Meeting of the Shareholders of Callaway Golf Company, a California
corporation (the "Company"), will be held at 2180 Rutherford Road, Carlsbad,
California 92008 (near the Company's headquarters), commencing at 10:00 a.m.,
on May 5, 1999, to consider and vote on the following matters described in this
notice and the accompanying Proxy Statement:
1. To elect 10 directors to the Company's Board of Directors to serve
for one-year terms.
2. To approve the reincorporation of the Company as a Delaware
corporation by means of a merger of the Company with and into a
wholly owned Delaware subsidiary of the Company. This proposal does
not include the adoption of any new "anti-takeover" provisions. If
the proposal is adopted, the maximum size of the Board of Directors
will be increased from eleven to fifteen.
3. To approve the adoption of the Callaway Golf Company 1999 Employee
Stock Purchase Plan under which employees may purchase shares of the
Company's Common Stock pursuant to the provisions of and the
regulations relating to Section 423 of the Internal Revenue Code. The
plan will authorize and reserve for issuance 2,000,000 shares of the
Company's Common Stock which may be issued pursuant to the terms of
such plan.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 8, 1999 as
the record date for determination of shareholders entitled to vote at the
Annual Meeting or any adjournments thereof, and only record holders of Common
Stock at the close of business on that day will be entitled to vote. At the
record date, 75,526,661 shares of Common Stock were issued and outstanding.
TO ASSURE REPRESENTATION AT THE ANNUAL MEETING, SHAREHOLDERS ARE URGED TO
SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE POSTAGE-
PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER ATTENDING THE
ANNUAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE PREVIOUSLY RETURNED A
PROXY.
If you plan to attend the Annual Meeting in person, we would appreciate your
response by indicating so at the appropriate place on the proxy card enclosed.
By Order of the Board of Directors,
/s/ Steven C. McCracken
Steven C. McCracken
Secretary
Carlsbad, California
April 1, 1999
<PAGE>
CALLAWAY GOLF COMPANY
2285 RUTHERFORD ROAD
CARLSBAD, CALIFORNIA 92008
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
MEETING DATE: MAY 5, 1999
This Proxy Statement is being sent on or about April 1, 1999 in connection
with the solicitation of proxies by the Board of Directors of Callaway Golf
Company, a California corporation (the "Company" or "Callaway Golf"). The
proxies are for use at the 1999 Annual Meeting of the Shareholders of the
Company, which will be held at 2180 Rutherford Road, Carlsbad, California
92008 (near the Company's headquarters), on May 5, 1999, commencing at 10:00
a.m., and at any meetings held upon adjournment thereof (the "Annual
Meeting"). The record date for the Annual Meeting is the close of business on
March 8, 1999 (the "Record Date"). Only holders of record of the Company's
Common Stock on the Record Date are entitled to notice of the Annual Meeting
and to vote at the Annual Meeting.
A proxy card is enclosed. Whether or not you plan to attend the Annual
Meeting in person, please date, sign and return the enclosed proxy card as
promptly as possible, in the postage-prepaid envelope provided, to ensure that
your shares will be voted at the Annual Meeting. Any shareholder who returns a
proxy has the power to revoke it at any time prior to its effective use by
filing with the Secretary of the Company an instrument revoking it or a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. Unless contrary instructions are given, any such proxy, if
not revoked, will be voted at the Annual Meeting for the 10 nominees for
election as directors as set forth in this Proxy Statement, for the proposal
to reincorporate Callaway Golf Company as a Delaware corporation, for the
proposal to adopt the Callaway Golf Company 1999 Employee Stock Purchase Plan,
and as recommended by the Board of Directors, in its discretion, with regard
to all other matters which may properly come before the Annual Meeting. The
Company does not currently know of any such other matters.
At the Record Date, there were 75,526,661 shares of the Company's Common
Stock outstanding. The presence, either in person or by proxy, of persons
entitled to vote a majority of the Company's outstanding Common Stock is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. Abstentions and broker non-votes are counted for purposes of
determining a quorum, but are not considered as having voted for purposes of
determining the outcome of a vote. No other voting securities of the Company
were outstanding at the Record Date.
Holders of Common Stock have one vote for each share on any matter that may
be presented for consideration and action by the shareholders at the Annual
Meeting, except that shareholders may have cumulative voting rights with
respect to the election of directors. Cumulative voting rights entitle each
shareholder to cast as many votes as are equal to the number of directors to
be elected multiplied by the number of shares owned by such shareholder, which
votes may be cast for one candidate or distributed among two or more
candidates. For cumulative voting rights to be applicable, one or more
shareholders must give notice at the Annual Meeting of the intention to
cumulate votes prior to the voting. The 10 nominees for director receiving the
highest number of votes at the Annual Meeting will be elected. Unless
instructed otherwise, the shares represented by proxies to management will be
voted in the discretion of management so as to elect the maximum number of
management nominees which may be elected by cumulative voting (if applicable).
<PAGE>
The cost of preparing, assembling, printing and mailing this Proxy Statement
and the accompanying form of proxy, and the cost of soliciting proxies
relating to the Annual Meeting, will be borne by the Company. The Company may
request banks and brokers to solicit their customers who beneficially own
Common Stock listed of record in names of nominees, and will reimburse such
banks and brokers for their reasonable out-of-pocket expenses for such
solicitations. The solicitation of proxies by mail may be supplemented by
telephone, telegram and personal solicitation by officers, directors and
regular employees of the Company, but no additional compensation will be paid
to such individuals. The Company has retained the firm of D. F. King & Co.,
Inc. to assist, if necessary, in the solicitation of proxies for a fee of
approximately $10,000 plus out-of-pocket expenses.
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BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of February 28, 1999 (except as
otherwise noted) by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each director
who is standing for re-election, (iii) each of the executive officers named in
the Summary Compensation Table appearing elsewhere in this Proxy Statement
(the "Summary Compensation Table") and (iv) all directors standing for re-
election and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS OF -------------------------
BENEFICIAL OWNER(/1/) NUMBER PERCENT
--------------------- --------------- -------------
<S> <C> <C>
Sanwa Bank California, 5,300,000 7.0%
Trustee for the Callaway Golf Company
Grantor Stock Trust(/2/) Institutional
Trust & Investments 601 S. Figueroa
Street, W10-1
Los Angeles, California 90017
Ely Callaway(/3/) 1,233,541 1.6%
William C. Baker(/4/) 12,901 *
Donald H. Dye(/5/) 984,371 1.3%
Richard C. Helmstetter(/6/) 1,246,375 1.6%
Vernon E. Jordan, Jr.(/7/) 41,000 *
Yotaro Kobayashi(/8/) 2,700 *
Bruce Parker(/9/) 409,276 *
Aulana L. Peters(/10/) 80,200 *
Frederick R. Port(/11/) 227,300 *
Richard Rosenfield(/12/) 109,100 *
William A. Schreyer(/13/) 108,000 *
Charles J. Yash(/14/) 416,885 *
All directors and executive officers
as a group (15 persons)(/15/) 5,543,078 7.0%
</TABLE>
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* Less than one percent.
(1) Except as otherwise indicated, the address for all persons shown on this
table is c/o the Company, 2285 Rutherford Road, Carlsbad, California
92008. Unless otherwise indicated in the footnotes to this table, and
subject to community property laws where applicable, to the knowledge of
the Company each of the shareholders named in this table has sole voting
and investment power with respect to the shares shown as beneficially
owned by that shareholder.
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<PAGE>
(2) The Callaway Golf Company Grantor Stock Trust (the "GST") holds Company
Common Stock pursuant to a trust agreement creating the GST in connection
with the prefunding of certain obligations of the Company under various
employee benefit plans. Both the GST and the Trustee disclaim beneficial
ownership of the shares of Common Stock. The Trustee has no discretion in
the manner in which the Company's Common Stock held by the GST will be
voted. The trust agreement provides that employees who hold unexercised
options as of the Record Date under the Company's stock option plans and
employees who have purchased stock under the Company's 1995 Employee
Stock Purchase Plan during the twelve months preceding the Record Date
will, in effect, determine the manner in which shares of the Company's
Common Stock held in the GST are voted. The Trustee will vote the Common
Stock held in the GST in the manner directed by those employees who
submit voting instructions for the shares.
The number of shares as to which any one employee can direct the vote
will depend upon how many employees submit voting instructions to the
Trustee. If all employees entitled to submit such instructions do so, as
of March 8, 1999, the executive officers named in the Summary
Compensation Table would have the right to direct the vote of the
following share amounts: Ely Callaway--166,483, Bruce Parker--228,914,
Richard C. Helmstetter--393,315, Frederick R. Port--228,914, and Charles
J. Yash--321,357 and all executive officers as a group--1,840,043. If
less than all of the eligible employees submit voting instructions, then
the foregoing amounts would be higher. The trust agreement further
provides that all voting instructions received by the Trustee will be
held in confidence and not disclosed to any person including the Company.
(3) Includes 800,000 shares held by the Ely R. Callaway, Jr. Trust (the
"Callaway Trust") for which Ely Callaway is trustee, with voting and
dispositive powers over such shares. Also includes 41,157 shares held by
Cindy Callaway, Mr. Callaway's spouse. Also includes 80,275 shares held
by the Callaway Golf Company Foundation, a charitable foundation, which
currently are voted by Mr. Callaway in his capacity as President of the
Callaway Golf Company Foundation. Also includes 105,180 shares held by
the Cindy and Ely Callaway Family Foundation, a charitable foundation,
which currently are voted by Mr. Callaway in his capacity as President of
the Cindy and Ely Callaway Family Foundation. Mr. Callaway disclaims
beneficial ownership of all shares held by the Callaway Golf Company
Foundation and the Cindy and Ely Callaway Family Foundation. Includes
180,000 shares issuable upon exercise of options held by Mr. Callaway,
which are currently exercisable or become exercisable on or before April
29, 1999. Also includes 10,000 shares which do not vest and are
restricted as to sale or transfer until January 1, 2003.
(4) Includes 12,000 shares issuable upon exercise of options held by Mr.
Baker, which are currently exercisable or become exercisable on or before
April 29, 1999. Includes 50 shares held by Mr. Baker's spouse.
(5) Mr. Dye's information regarding beneficial ownership of the Company's
Common Stock is as of October 31, 1998. Includes 560,000 shares issuable
upon the exercise of options held by Mr. Dye, which are currently
exercisable or become exercisable on or before April 29, 1999. Also
includes 9,150 shares which are held by Mr. Dye's spouse. Also includes
64,036 shares held by the Dye Family Foundation, a charitable foundation,
which currently are voted by Mr. Dye in his capacity as President of the
Dye Family Foundation. Mr. Dye disclaims beneficial ownership of all
shares held by the Dye Family Foundation.
(6) Includes 800,000 shares issuable upon exercise of options held by Mr.
Helmstetter, which are currently exercisable or become exercisable on or
before April 29, 1999. Also includes 365,500 shares held by immediate
family members, both directly and through trusts in which
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Mr. Helmstetter or his family members have an interest. Also includes
89,875 shares held by the Helmstetter Family Foundation, a charitable
foundation, of which Mr. Helmstetter shares the power to vote and dispose
of such shares in his capacity as an officer and director of the
Helmstetter Family Foundation. Mr. Helmstetter disclaims beneficial
ownership of all shares held by the Helmstetter Family Foundation.
(7) Includes 40,000 shares issuable upon exercise of options held by Mr.
Jordan, which are currently exercisable or become exercisable on or
before April 29, 1999.
(8) Represents 2,700 shares held by Mr. Kobayashi's spouse.
(9) Includes 380,000 shares issuable upon exercise of options held by Mr.
Parker, which are currently exercisable or become exercisable on or
before April 29, 1999. Also includes 10,000 shares which do not vest and
are restricted as to sale or transfer until January 1, 2003.
(10) Includes 200 shares owned jointly with Mrs. Peters' spouse, Bruce F.
Peters. Also includes 80,000 shares issuable upon exercise of options
held by Mrs. Peters, which are currently exercisable or become
exercisable on or before April 29, 1999.
(11) Includes 5,600 shares held by the Linda and Fred Port Family Foundation,
a charitable foundation, of which Mr. Port shares the power to vote and
dispose of such shares in his capacity as an officer and director of the
Linda and Fred Port Family Foundation. Mr. Port disclaims beneficial
ownership of all shares held by the Linda and Fred Port Family
Foundation. Also includes 10,000 shares held by Mr. Port which do not
vest and are restricted as to sale or transfer until January 1, 2003.
Also includes 180,000 shares issuable upon exercise of options held by
Mr. Port, which are currently exercisable or become exercisable on or
before April 29, 1999.
(12) Includes 92,000 shares issuable upon exercise of options held by Mr.
Rosenfield, which are currently exercisable or become exercisable on or
before April 29, 1999. Includes 3,000 shares held in a trust for the
benefit of Mr. Rosenfield's children and 50 shares held by Mr.
Rosenfield's spouse.
(13) Includes 88,000 shares issuable upon exercise of options held by Mr.
Schreyer, which are currently exercisable or become exercisable on or
before April 29, 1999.
(14) Includes 400,000 shares issuable upon exercise of options held by Mr.
Yash, which are currently exercisable or become exercisable on or before
April 29, 1999. Also includes 10,000 shares which do not vest and are
restricted as to sale or transfer until January 1, 2003.
(15) Includes 3,392,000 shares issuable upon exercise of options held by these
individuals, which are currently exercisable or become exercisable on or
before April 29, 1999. Also includes 53,500 shares which do not vest and
are restricted as to sale or transfer until January 1, 2003.
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<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has determined that the 10 directors named below will
be nominated for election as directors at the Annual Meeting. Each nominee has
consented to being named in the Proxy Statement as a nominee for election as
director and has agreed to serve as director if elected.
The persons named in the accompanying form of proxy have advised the Company
that they intend at the Annual Meeting to vote the shares covered by the
proxies for the election of the nominees named below. If any one or more of
such nominees should for any reason become unavailable for election, the
persons named in the accompanying form of proxy may vote for the election of
such substitute nominees as the Board of Directors may propose. The
accompanying form of proxy contains a discretionary grant of authority with
respect to this matter.
The nominees for election as directors at the Annual Meeting are set forth
below.
<TABLE>
<CAPTION>
POSITIONS WITH THE DIRECTOR
NAME COMPANY SINCE
---- ------------------ --------
<C> <S> <C>
Founder, Chairman,
Ely Callaway President, Chief 1982
Executive Officer, and
Director
William C. Baker Director 1994
Vernon E. Jordan, Jr. Director 1997
Yotaro Kobayashi Director 1998
Senior Executive Vice
Bruce Parker President, U.S. Sales, 1996
Chief Merchant and
Director
Aulana L. Peters Director 1996
Senior Executive Vice
Frederick R. Port President, 1995
International Sales, and
Director
Richard Rosenfield Director 1994
William A. Schreyer Director 1994
Senior Executive Vice
Charles J. Yash President, 1996
Golf Balls, and Director
</TABLE>
For additional biographical information concerning these individuals, see
"Biographical Information."
The Company's Board of Directors met six times during 1998. Each of the
Company's directors attended at least 75% of the meetings of the Board of
Directors and committees of the Board of Directors on which he or she served
during 1998, except for Mr. Jordan who attended 67% of such meetings.
All directors of the Company hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified.
Directors who are not employees of the Company receive $24,000 per year in
cash compensation, plus reimbursement of expenses. Non-employee directors of
the Company also are entitled to receive
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the current products of the Company, free of charge, for their own personal
use and the use of their immediate family members living at home. In 1998, the
wholesale value of products received ranged from zero to approximately $3,900
per non-employee director. In addition, the non-employee directors participate
in the Callaway Golf Company Non-Employee Directors Stock Option Plan (the
"Director Plan"), which was approved by the shareholders at the Company's 1993
Annual Meeting. Pursuant to the Director Plan, non-employee directors are
automatically granted stock options to purchase 80,000 shares of Common Stock
upon initial election or appointment to the Board at an exercise price equal
to (i) $10.00 per share of Common Stock, if elected or appointed prior to
January 1, 1993, (ii) 75% of the fair market value of the Common Stock on the
date of initial election or appointment, if elected or appointed on or after
January 1, 1993 through April 17, 1996, or (iii) the fair market value of the
Common Stock on the date of such initial election or appointment, if elected
or appointed after April 17, 1996. Thereafter, each non-employee director
automatically receives, on each even-numbered anniversary of such initial
election or appointment (provided such person is continuing for at least one
year thereafter), an additional grant of stock options to purchase 8,000
shares of Common Stock at an exercise price equal to the fair market value of
the Common Stock on the date of each such subsequent grant. All options
granted under the Director Plan vest 50% on the first anniversary of the date
of grant and 50% on the second anniversary, provided in each case the optionee
remains as a director on such vesting dates. A maximum of 840,000 shares have
been approved for issuance in the aggregate pursuant to stock options granted
under the Director Plan, and no individual director may receive options to
purchase more than 120,000 shares thereunder.
The Company has an Executive and Compensation Committee consisting of
Messrs. Callaway (Chair), Rosenfield (Vice Chair), Baker, Jordan and Schreyer
and Mrs. Peters. Mr. Dye also was a member of the Executive and Compensation
Committee until his termination in October 1998. The Executive and
Compensation Committee makes decisions or recommendations to the Board
concerning salaries and incentive compensation for officers and employees of
the Company. The Executive and Compensation Committee met three times during
1998. See also "Compensation Committee Interlocks and Insider Participation"
in this Proxy Statement.
The Board of Directors also has a Finance and Audit Committee (formerly the
Audit Committee until February 1999), which reviews, among other things, the
results and scope of the audit and other services provided by the Company's
independent accountants. The Finance and Audit Committee met five times during
1998. The Finance and Audit Committee consists of Messrs. Baker (Chair) and
Rosenfield, and Mrs. Peters. On certain finance matters, Messrs. Callaway and
Port attend Finance and Audit Committee meetings as non-voting advisors.
BIOGRAPHICAL INFORMATION
Ely Callaway, 79, Founder, has served as President and Chief Executive
Officer since October 1998, and also has served as Chairman of the Board of
the Company since the Company's formation in 1982. Mr. Callaway also currently
serves as Chairman of the Executive and Compensation Committee, and as
Chairman of the Company, is a non-voting advisor of all other Board
committees. He served as Chief Executive Officer from 1982 to May 1996, and
Chief of Advertising, Press and Public Relations from April 1997 to October
1998. From 1974 to 1981, Mr. Callaway founded and operated Callaway Vineyard
and Winery in Temecula, California, until it was sold. From 1946 to 1973, Mr.
Callaway worked in the textile industry, where he served as a Divisional
President of several major divisions of Burlington Industries, Inc., and in
1968 was elected Corporate President and Director of Burlington, which at the
time was the world's largest textile company. Prior to 1945,
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<PAGE>
Mr. Callaway served a five-year tour of duty in the U.S. Army Quartermaster
Corps. Mr. Callaway is a 1940 graduate of Emory University.
William C. Baker, 65, has served as a Director of the Company since January
1994 and is Chairman of the Finance and Audit Committee. He is currently
President and Chief Executive Officer of the Los Angeles Turf Club,
Incorporated, a subsidiary of Magna International, Inc. He was Chairman and
Chief Executive Officer of The Santa Anita Companies, Inc., a subsidiary of
Meditrust Operating Company, from November 1997 to December 1998. Prior to
that, he was Chairman of Santa Anita Realty Enterprises, Inc. from April 1996
to November 1997 and Chairman, President and Chief Executive Officer of Santa
Anita Operating Company from August 1996 to November 1997. He was President
and Chief Operating Officer of Red Robin International, Inc. (a restaurant
chain) from May 1993 to May 1995, and Chairman and Chief Executive Officer of
Carolina Restaurant Enterprises, Inc. from August 1992 to December 1995. Mr.
Baker was the principal shareholder and Chief Executive Officer of Del Taco,
Inc. from 1977 until 1988 when that business was sold. He also serves as a
director of Los Angeles Turf Club, Incorporated, Meditrust Operating Company
and Public Storage, Inc. Mr. Baker received his law degree from the University
of Texas in 1957.
Vernon E. Jordan, Jr., 63, has served as a Director of the Company since
July 1997. Mr. Jordan is a senior partner in the law firm of Akin, Gump,
Strauss, Hauer & Feld, having joined the firm in 1982. Currently, Mr. Jordan
serves as a member of the Board of Directors of American Express Company,
Bankers Trust Company, Bankers Trust New York Corporation, Chancellor Media
Corporation, Dow Jones and Company, Inc., J.C. Penney Company, Inc., Revlon
Group, Revlon, Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation. Prior to 1982, Mr. Jordan held the
following positions: President and Chief Executive Officer of the National
Urban League; Executive Director of the United Negro College Fund; Director of
the Voter Education Project of the Southern Regional Council; Attorney-
Consultant, U.S. Office of Economic Opportunity; Assistant to the Executive
Director of the Southern Regional Council; Georgia Field Director of the
National Association for the Advancement of Colored People; and an attorney in
private practice in Arkansas and Georgia. In addition, Mr. Jordan also served
as the Chairman of the Clinton Presidential Transition Team in 1992. Mr.
Jordan is a 1957 graduate of DePauw University and received his J.D. from the
Howard University of Law School in 1960.
Yotaro Kobayashi, 65, has served as a director of the Company since June,
1998. He is Chairman and Co-Chief Executive Officer of Fuji Xerox Co., Ltd.
Mr. Kobayashi joined Fuji Photo Film Co., Ltd. in 1958, was assigned to Fuji
Xerox Co., Ltd. in 1963, named President and Chief Executive Officer in 1978
and Chairman and Chief Executive Officer in 1992. Mr. Kobayashi is a director
of Xerox Corporation and ABB Asea Brown Boveri Ltd. He holds positions as
Chairman of The Aspen Institute Japan and Vice Chairman of the Keizai Doyukai
(Japan Association of Corporate Executives), Japanese Chairman of the
Trilateral Commission, and Vice Chairman of the International University of
Japan. He also is on the International Advisory Boards of both Northern
Telecom Limited and the Council on Foreign Relations and is on the
International Council of JP Morgan. In addition, Mr. Kobayashi serves on the
Board of Trustees of both the Wharton School of the University of
Pennsylvania, and on the Advisory Board of Stanford University's Graduate
School of Business. He is a 1956 graduate of Keio University and received his
MBA from the Wharton School in 1958.
Bruce Parker, 43, has served as a Director of the Company since July 1996,
Senior Executive Vice President, U.S. Sales, since 1993 and Chief Merchant
since 1991. He has held the office of President, and Chief Executive Officer,
of Callaway Golf Sales Company, the Company's wholly-
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<PAGE>
owned U.S. sales subsidiary, since 1995 and 1997, respectively. Mr. Parker
also has served the Company in various vice presidential positions since 1984
and became Executive Vice President, Chief Merchant in October 1991. Prior to
1984, Mr. Parker worked as a sales manager for various golf club manufacturers
in California.
Aulana L. Peters, 57, has served as a Director of the Company since July
1996. She has been a partner with the law firm of Gibson, Dunn & Crutcher
since 1980 in Los Angeles and Washington, D.C., having joined Gibson, Dunn &
Crutcher as an associate in 1973. From June 1984 through July 1988, Mrs.
Peters was a Commissioner with the Securities and Exchange Commission.
Currently, Mrs. Peters serves as a member of the Board of Directors of
Northrop Grumman Corporation, Merrill Lynch Co., Inc., Minnesota Mining &
Manufacturing Company (3M) and Mobil Corporation. Mrs. Peters has served as a
member of the Board of Directors of the New York Stock Exchange and is
currently a member of the New York Stock Exchange's Market Regulatory Advisory
Committee and the National Association of Securities Dealers' Legal Advisory
Committee. Mrs. Peters earned a J.D. from the University of Southern
California Law Center in 1973, and a B.A. in Philosophy from the College of
New Rochelle in 1963.
Frederick R. Port, 57, has served as Senior Executive Vice President,
International Sales since April 1997 and as a Director since October 1995. He
has held the position of President of Callaway Golf International, the
international sales division of the Company, since 1996 and President of ERC
International Company since October 1998. He served as Executive Vice
President, International Sales, Licensing and Business Development of the
Company from April 1996 to April 1997. He served as Executive Vice President,
Business Development, of the Company from September 1995 to April 1996. From
1993 to 1995, Mr. Port was the Managing Director of Korn/Ferry International
for the Southern California region (an executive recruiting and strategic
consulting firm). From 1987 to 1992, he was the President and a Director of
the Owl Companies (a company providing military base services management,
construction materials production and sale, industrial and commercial real
estate development and power development). Prior to that, he served with
several companies in a variety of executive positions, including Chairman,
Chief Executive Officer and Director of Santa Anita Development Corporation,
Vice President, Finance and Asset Management, of the Victor Palmieri Company
and consultant for Booz, Allen and Hamilton. Mr. Port served as an infantry
officer in the United States Army. He is a 1963 graduate of UCLA and received
his MBA with honors from UCLA in 1966.
Richard L. Rosenfield, 53, has served as a Director of the Company since
April 1994 and is Vice Chairman of the Executive and Compensation Committee.
He is co-Founder and co-Chairman of the Board of California Pizza Kitchen,
Inc. (a gourmet pizza restaurant chain, founded in 1985). From 1973 to 1985,
Mr. Rosenfield was a principal and partner of the Law Firm of Flax and
Rosenfield, a private law firm in Beverly Hills, California. From 1969 to
1973, he served as an attorney in the U.S. Department of Justice. He is a 1969
graduate of DePaul University College of Law.
William A. Schreyer, 71, has served as a Director of the Company since July
1994 and is Chairman Emeritus of Merrill Lynch & Co., Inc. He served as
Chairman of the Board of Merrill Lynch & Co., Inc. from April 1985 through
June 1993, and Chief Executive from July 1984 through April 1992. Mr. Schreyer
currently is a Director and member of the Compensation Committee of Deere &
Company and Schering-Plough Corporation, and a Director of Iridium World
Communications Ltd. He is affiliated with the George Bush Presidential Library
Foundation, and is Trustee, International Councillor, and Chairman of the
Executive Committee of the Center for Strategic and International Studies
(CSIS), a Washington, D.C.-based bipartisan public policy institute. Mr.
Schreyer graduated from Pennsylvania State University in 1948 and serves as a
member Emeritus of its Board of Trustees.
9
<PAGE>
Charles J. Yash, 50, has served as a Director of the Company since July
1996, Senior Executive Vice President, Golf Balls, of the Company since
February 1999, and as President and Chief Executive Officer of Callaway Golf
Ball Company, a wholly-owned subsidiary of the Company, since June 1996. Mr.
Yash served as an Executive Vice President of the Company from February 1998
to February 1999. From 1992 to June 1996, Mr. Yash was President and Chief
Executive Officer and a Director of Taylor Made Golf Company. From 1979 to
1992, Mr. Yash was employed in various marketing positions with the golf
products division of Spalding Sports Worldwide, including Corporate Vice
President and General Manager-Golf Products, from 1988 to 1992. From 1970 to
1975, Mr. Yash served in the United States Navy in various positions. Mr. Yash
completed the Advanced Executive Program at the University of Massachusetts in
1982, received his M.B.A. in 1977 from Harvard Business School and graduated
with a Bachelor of Science degree from the U.S. Naval Academy in 1970.
10
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid by the Company to its Chief
Executive Officer and the other four most highly compensated executive
officers ("named executive officers") of the Company for the years indicated.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- ------------------------
RESTRICTED
STOCK
NAME AND PRINCIPAL AWARDS OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS ($) (#) COMPENSATION(/1/)
- ------------------ ---- -------- ---------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ely Callaway Golf 1998 $840,162(/2/)(/3/) -0- -0- 150,000 $ 12,100
Chairman, President 1997 $841,114(/2/)(/3/) $ 150,000 $310,000(/4/) 150,000 $ 14,608
and CEO 1996 $861,110(/2/)(/3/) $ 850,000 -0- -0- $ 18,386
Donald H. Dye 1998 $851,241(/3/) -0- -0- -0- $2,603,118(/8/)
President and CEO 1997 $763,370(/3/) $ 200,000 $620,000(/4/) 1,000,000 $ 66,637
until October 1998 1996 $645,990(/3/) $1,000,000 -0- -0- $ 27,794
Bruce Parker 1998 $621,107(/5/) -0- -0- 150,000 $ 34,636
Sr. Exec. Vice Pres., 1997 $619,039(/3/)(/5/) $ 240,000(/5/) $310,000(/4/) -0- $ 20,016
U.S. Sales, and 1996 $514,245(/3/)(/5/) $ 700,000(/5/) -0- -0- $ 21,804
Chief Merchant
Richard C. Helmstetter 1998 $600,004 -0- -0- 250,000 $ 34,401
Sr. Exec. Vice Pres., 1997 $408,677(/3/) $ 400,000 -0- -0- $ 21,194
Chief of New Golf 1996 $448,354(/3/) $ 600,000 -0- -0- $ 24,742
Club Products
Frederick R. Port 1998 $560,008(/6/) -0- -0- 150,000 $ 25,409
Sr. Exec. Vice Pres., 1997 $570,008(/6/) $ 220,000(/5/) $310,000 -0- $ 25,625
International Sales 1996 $500,004 $ 500,000(/5/) -0- -0- $ 19,546
Charles J. Yash 1998 $500,004(/5/) -0- -0- 150,000 $ 22,072
Sr. Exec. Vice Pres., 1997 $500,004 $ 200,000 $310,000 -0- $ 14,003
Golf Balls 1996 $320,523(/5/) $ 970,000(/7/)(/5/) -0- 600,000 $ 26,607
</TABLE>
- --------
(1) Includes Company contributions under defined contribution plans (401(k)
and profit sharing), personal use of Company-owned assets and other
services paid for by the Company for the benefit of these named executive
officers.
(2) Includes the payment of a special expense allowance of $35,000 for 1998,
1997 and 1996.
(3) Includes payout of accrued vacation hours.
(4) In respect of individual officer performances in 1997, the Company's Stock
Option Committee made grants of restricted shares of the Company's Common
Stock on February 19, 1998 to the following named executive officers: Mr.
Callaway, 10,000 shares; Mr. Dye, 20,000 shares;
11
<PAGE>
Mr. Parker, 10,000 shares; Mr. Port 10,000 shares; and Mr. Yash 10,000
shares. Except for the shares awarded to Mr. Dye, these restricted shares
do not vest until January 1, 2003. The vesting of Mr. Dye's shares was
accelerated in connection with his termination in October 1998. See
"Employment Agreements and Termination of Employment Arrangements--Mr.
Dye." The closing price of the Company's Common Stock on the New York
Stock Exchange on the grant date was $31.00 per share. All such shares
shall be entitled to dividends, if any, paid during the restriction
period.
(5) Includes amounts which were deferred pursuant to the Company's Executive
Deferred Compensation Plan which was implemented in 1994. The amounts of
these deferrals, at the election of the aforementioned named executive
officers, totaled $61,000 in 1998, $412,810 in 1997 and $920,406 in 1996.
(6) Includes payment of a special expense allowance of $10,000 for 1998 and
$20,000 for 1997.
(7) Includes a signing bonus of $600,000 earned by Mr. Yash in connection with
his commencing employment with the Company, together with amounts earned
by Mr. Yash under the Company's executive bonus pool.
(8) Includes severance benefits of the remaining base salary due under the
term of Mr. Dye's employment agreement, vesting of restricted common
stock, and certain other perquisites.
12
<PAGE>
OPTION GRANTS IN 1998
The following table provides information on stock option grants to Messrs.
Callaway, Parker, Helmstetter, Port and Yash, the only executive officers
named in the Summary Compensation Table to be granted stock options in 1998.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE MARKET
OPTIONS EMPLOYEES OR BASE PRICE AT GRANT DATE
GRANTED IN FISCAL PRICE EXPIRATION GRANT PRESENT
NAME (#) YEAR ($/SH) DATE ($/SH) VALUE ($)
---- ------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ely Callaway 150,000(/1/) 4.6% $27.375 2008(/2/) $27.375 $1,301,217(/3/)
Bruce Parker 150,000(/1/) 4.6% $27.375 2008(/2/) $27.375 $1,301,217(/3/)
Richard C. Helmstetter 250,000(/4/) 7.6% $31.000 2004-2007(/5/) $31.000 $2,540,427(/6/)
Fred Port 150,000(/1/) 4.6% $27.375 2008(/2/) $27.375 $1,301,217(/3/)
Charles J. Yash 150,000(/1/) 4.6% $27.375 2008(/2/) $27.375 $1,301,217(/3/)
</TABLE>
- --------
(1) These options vest in installments of 30,000 options each on January 1,
1999, 2000, 2001, 2002 and 2003, respectively.
(2) Vested options expire on the earlier of (i) one year from the date the
named executive officer ceases to be an employee of the Company for any
reason or (ii) April 24, 2008.
(3) These options were valued as of the date of grant based on the Black-
Scholes option pricing model adapted for use in valuing executive stock
options using the following assumptions: (a) expected volatility of 42.0%,
(b) risk-free rates of return of 4.51%-4.68%, (c) dividend yield of 1.87%
and (d) expected terms of 1.7-5.7 years. The actual value, if any, an
executive may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised, so there is no
assurance the value realized by an executive will be at or near the value
estimated by the Black-Scholes model. Under current market conditions,
these options would be valued at a much lower amount using the Black-
Scholes model.
(4) These options represent a grant of 12,900 incentive stock options and
237,100 non-qualified stock options. The incentive stock options vest in
installments of 3,225 options each on January 1, 1999, 2000, 2001 and
2002, respectively. The non-qualified stock options vest as follows:
21,775, 46,775, 71,775 and 96,775 on January 1, 1999, 2000, 2001, and
2002, respectively.
(5) Vested options expire on the earlier of (i) one year from the date Mr.
Helmstetter ceases to be an employee of the Company for any reason or (ii)
five years after the vesting date of each option.
(6) These options were valued as of the date of grant based on the Black-
Scholes option pricing model adapted for use in valuing executive stock
options using the following assumptions: (a) expected volatility of 42.0%,
(b) risk-free rates of return of 4.51%-4.66%, (c) dividend yield of 1.87%
and (d) expected terms of 1.9-4.9 years. The actual value, if any, an
executive may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised, so there is no
assurance the value realized by an executive will be at or near the value
estimated by the Black-Scholes model. Under current market conditions,
these options would be valued at a much lower amount using the Black-
Scholes model.
13
<PAGE>
OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
The following table provides information on options exercised by the
executive officers named in the Summary Compensation Table during 1998 and
unexercised options held by such persons at December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS EXERCISES
DURING 1998 UNEXERCISED OPTIONS HELD AT 12/31/98
----------------------- ---------------------------------------------------------------
VESTED UNVESTED
SHARES --------------------------- -----------------------------------
ACQUIRED ON VALUE NUMBER OF VALUE AT YEAR OF NUMBER OF VALUE AT
NAME EXERCISE(#) REALIZED($) SHARES(#) 12/31/98 ($)(/1/) VESTING SHARES(#) 12/31/98 ($)(/1/)
---- ----------- ----------- --------- ----------------- ------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ely Callaway -0- -0- 100,000 -0- 1999 80,000 -0-
2000 30,000 -0-
2001 30,000 -0-
2002 30,000 -0-
2003 30,000 -0-
Donald H. Dye -0- -0- 560,000 -0- N/A -0- -0-
Bruce Parker -0- -0- 270,000 $1,162,500 1999 60,000 -0-
2000 30,000 -0-
2001 30,000 -0-
2002 30,000 -0-
2003 30,000 -0-
Richard C. -0- -0- 695,000 $4,724,375 1999 55,000 -0-
Helmstetter 2000 50,000 -0-
2001 75,000 -0-
2002 100,000 -0-
Frederick R. Port -0- -0- 100,000 -0- 1999 130,000 -0-
2000 130,000 -0-
2001 30,000 -0-
2002 30,000 -0-
2003 30,000 -0-
Charles J. Yash -0- -0- 320,000 -0- 1999 130,000 -0-
2000 130,000 -0-
2001 30,000 -0-
2002 30,000 -0-
2003 30,000 -0-
</TABLE>
- --------
(1) Represents the spread between aggregate exercise price and assumed
aggregate market value using the closing price of the Company's Common
Stock on the New York Stock Exchange on December 31, 1998 ($10.25).
14
<PAGE>
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Mr. Callaway. The Company has an employment agreement with Mr. Callaway for
a term commencing January 1, 1997 and ending December 31, 1999. The agreement
requires Mr. Callaway to devote his full productive time and best efforts to
the Company during the term of the agreement, to refrain from competing with
the Company, to hold in confidence all trade secrets and proprietary
information Mr. Callaway receives from the Company, and to disclose and assign
to the Company all inventions and innovations he develops during the term of
his employment with the Company. In exchange, Mr. Callaway is entitled to
receive an annual salary of $750,000 and an opportunity to earn an annual
discretionary bonus as determined by the Board of Directors. Mr. Callaway also
is entitled to receive a special, non-accountable expense allowance of $35,000
per year for Company-related business expenses. If Mr. Callaway is terminated
for convenience by the Company, or if Mr. Callaway terminates the agreement
for substantial cause (as defined in the agreement), or upon a "termination
event" within one year following a "change in control" of the Company (as such
terms are defined below under "--Change in Control Arrangements"), he will be
entitled to receive severance benefits equal to the continued payment of his
full base salary and certain benefits and perquisites payable under the
employment agreement, for the remaining term of the agreement, and the
immediate vesting of all unvested stock options.
Mr. Parker. The Company has an employment agreement with Mr. Parker for a
term commencing January 1, 1997 and ending December 31, 1999. The agreement
requires Mr. Parker to devote his full productive time and best efforts to the
Company during the term of the agreement, to refrain from competing with the
Company, to hold in confidence all trade secrets and proprietary information
he receives from the Company, and to disclose and assign to the Company all
inventions and innovations he develops during the term of his employment with
the Company. In exchange, Mr. Parker is entitled to receive an annual salary
of $600,000 and an opportunity to earn an annual bonus based on participation
in the Company's Executive Bonus Plan. If Mr. Parker is terminated for
convenience by the Company, or if Mr. Parker terminates the agreement for
substantial cause (as defined in the agreement), or upon a "termination event"
within one year following a "change in control" of the Company (as such terms
are defined below under "--Change in Control Arrangements"), he will be
entitled to receive severance benefits equal to the continued payment of his
full base salary, non-discretionary bonuses, if any, under the Company's
Executive Bonus Plan (as it existed at the date of termination) and certain
benefits and perquisites payable under the employment agreement, for the
remaining term of the agreement or two years, whichever is longer, and the
immediate vesting of all unvested stock options.
Mr. Helmstetter. The Company has an employment agreement with Mr.
Helmstetter for a term commencing January 1, 1998 and ending December 31,
2000, subject to certain automatic one-year extensions at the discretion of
the parties. The agreement requires Mr. Helmstetter to devote his full
productive time and best efforts to the Company during the term of the
agreement, to refrain from competing with the Company, to hold in confidence
all trade secrets and proprietary information he receives from the Company,
and to disclose and assign to the Company all inventions and innovations he
develops during the term of his employment with the Company. In exchange, Mr.
Helmstetter is entitled to receive an annual salary of $600,000 and an
opportunity to earn an annual bonus based on participation in the Company's
Executive Bonus Plan. If Mr. Helmstetter is terminated for convenience by the
Company, or if Mr. Helmstetter terminates the agreement for substantial cause
(as defined in the agreement), or upon a "termination event" within one year
following a "change in control" of the Company (as such terms are defined
below under "--Change in Control Arrangements"), he will
15
<PAGE>
be entitled to receive severance benefits equal to the continued payment of
his full base salary, non-discretionary bonuses, if any, under the Company's
Executive Bonus Plan (as it existed at the date of termination) and certain
benefits and perquisites payable under the employment agreement, until
December 31, 2000 (or if Mr. Helmstetter terminates the agreement for
substantial cause, for the remainder of the term of the agreement), and the
immediate vesting of all unvested stock options. Under the agreement,
Mr. Helmstetter also has assigned perpetually to the Company all of his rights
and title to the commercial use of his name, likeness, image, character,
identity and signature. If the employment agreement expires or terminates
prior to December 31, 2012 because (i) the Company has elected to discontinue
the automatic one-year extensions of the agreement, (ii) the Company has
terminated the agreement for convenience or (iii) Mr. Helmstetter has
terminated the agreement for substantial cause, then Mr. Helmstetter will be
entitled to receive the difference between the severance payments otherwise
due under the agreement and the base salary and nondiscretionary bonuses Mr.
Helmstetter would have received under the agreement through December 31, 2012.
In lieu of these payments, the Company may elect to return to Mr. Helmstetter
the commercial use rights. In addition, if the agreement expires by its terms
or is terminated for convenience by either the Company or Mr. Helmstetter, Mr.
Helmstetter will become an exclusive consultant to the Company pursuant to a
separate 10-year consulting agreement, at an annual salary equal to one-half
of Mr. Helmstetter's base salary in effect in the final year of the employment
agreement.
In addition, in connection with his employment agreement, Mr. Helmstetter
received a grant in February 1998 of options to purchase 250,000 shares of the
Company's Common Stock at an exercise price of $31.00 per share. Subject to
Mr. Helmstetter's continued employment as an employee or a consultant of the
Company, these options vest in increments of 25,000, 50,000, 75,000, and
100,000 shares on January 1 of 1999 through 2002, respectively.
Mr. Port. The Company has an employment agreement with Mr. Port for a term
commencing January 1, 1997 and ending December 31, 1999. The agreement
requires Mr. Port to devote his full productive time and best efforts to the
Company during the term of the agreement, to refrain from competing with the
Company, to hold in confidence all trade secrets and proprietary information
Mr. Port receives from the Company, and to disclose and assign to the Company
all inventions and innovations he develops during the term of his employment
with the Company. In exchange, Mr. Port is entitled to receive an annual
salary of $550,000, with the opportunity to receive increases (but not
decreases) in such annual salary in accord with the Company's plans and
policies as they may exist from time to time for its senior executive
officers, and an opportunity to earn an annual bonus based upon participation
in the Company's Executive Bonus Plan as it may exist from time to time. Mr.
Port also is entitled to receive a special, non-accountable expense allowance
of $20,000 per year for Company-related business expenses. Effective April 1,
1999, Mr. Port's annual salary was increased to $580,000. If Mr. Port is
terminated for convenience by the Company, or if Mr. Port terminates the
agreement for substantial cause (as defined in the agreement), or upon a
"termination event" within one year following a "change in control" of the
Company (as such terms are defined below under "--Change in Control
Arrangements"), he will be entitled to receive severance benefits equal to the
continued payment of his full base salary, non-discretionary bonuses, if any,
under the Company's Executive Bonus Plan (as it existed at the date of
termination) and certain benefits and perquisites payable under the employment
agreement, for the remaining term of the agreement or two years, whichever is
longer, and the immediate vesting of all unvested stock options.
Mr. Yash. The Company has an employment agreement with Mr. Yash for a term
commencing May 15, 1996 and ending May 14, 2001. The agreement requires Mr.
Yash to devote his full
16
<PAGE>
productive time and best efforts to the Company during the term of the
agreement, to refrain from competing with the Company, to hold in confidence
all trade secrets and proprietary information he receives from the Company,
and to disclose and assign to the Company all inventions and innovations he
develops during the term of his employment with the Company. In exchange, Mr.
Yash is entitled to receive an annual salary of $500,000 per year through
April 30, 1999, and $600,000 per year thereafter and an opportunity to earn an
annual bonus based on participation in the Company's Executive Bonus Plans. If
Mr. Yash is terminated for convenience by the Company, or if Mr. Yash
terminates the agreement for substantial cause (as defined in the agreement),
or upon a "termination event" within one year following a "change in control"
of the Company (as such terms are defined below under "--Change in Control
Arrangements"), he will be entitled to receive severance benefits equal to the
continued payment of his full base salary, non-discretionary bonuses, if any,
under the Company's Executive Bonus Plan (as it existed at the date of
termination) and certain benefits and perquisites payable under the employment
agreement, for the remaining term of the agreement or six months, whichever is
longer, and the immediate vesting of all unvested stock options that would
have vested had Mr. Yash remained employed under his employment agreement for
the remainder of the term or six months, whichever is longer.
Mr. Dye. In October 1998, the Board of Directors terminated Mr. Dye as the
Company's President and Chief Executive Officer. In connection therewith, the
Company and Mr. Dye entered into an agreement under which Mr. Dye received the
severance benefits due to him under his employment agreement upon termination
at the Company's convenience. These severance benefits included a payment
equal to the remaining base salary due under the term of his employment
agreement, the immediate vesting of unvested stock options and the
continuation of certain health benefits for the remainder of the term of his
employment agreement. In addition, the Company agreed to transfer to Mr. Dye
the laptop computer that was provided to him and a Company-owned membership in
a country club, to vest certain shares of restricted stock, and to continue an
annual physical examination for Mr. Dye until December 31, 2001. The payments
made to Mr. Dye in 1998 upon his departure are included in the column "All
Other Compensation" opposite Mr. Dye's name in the Summary Compensation Table
above. The Company also entered into a consulting agreement with Mr. Dye in
October 1998, pursuant to which Mr. Dye agreed to provide consulting services
to the Company with respect to matters related to the business of the Company.
Under the terms of the consulting agreement, Mr. Dye has agreed that he will
not, directly or indirectly, engage in any business or venture that engages
directly or indirectly in competition with the business of the Company or its
affiliates as of the date of the agreement. The consulting agreement
terminates December 31, 2001, unless extended for up to two one-year terms.
CHANGE IN CONTROL ARRANGEMENTS
From and after 1995, the Board of Directors has taken certain actions to
better assure that management, including the named executive officers, would
continue to provide independent leadership consistent with the Company's best
interests in the event of an actual or threatened change in control of the
Company. These actions are described below.
The Company's employment agreements with each of its officers, including the
named executive officers, provide certain protections in the event of a change
in control. If a change in control occurs before the termination of an
officer's employment agreement, then the employment agreement will be extended
in the same form and for the same number of years as the original term of the
agreement,
17
<PAGE>
commencing on the date of such change in control (except for Mr. Helmstetter's
agreement which continues in effect without extension). A "change in control"
of the Company is defined as, in general, the acquisition by any person of
beneficial ownership of 30% or more of the voting stock of the Company, a
change in the majority of the incumbent members of the Board of Directors
(unless such change is approved by a majority of the incumbent members),
certain business combinations of the Company, or any shareholder-approved or
court-ordered plan of liquidation of the Company. As described above under
"Employment Agreements and Termination of Employment Arrangements," the
Company's named executive officers are entitled to certain benefits if, during
the term of their employment agreements, there occurs a termination event at
certain specified times following a change in control. A "termination event"
means the occurrence of any of the following: (a) the termination or material
breach of the employment agreement by the Company or its successor; (b)
failure by the successor company to assume the employment agreement; (c) any
material diminishment in the position or duties of the officer; (d) any
reduction in compensation or benefits; or (e) any requirement that the officer
relocate his or her principal residence.
In addition, in 1995 the Company's stock option agreements with each of the
optionees, including the named executive officers, were amended to provide for
the immediate vesting of options under such agreements immediately prior to a
change in control (as described above), and tax indemnification agreements
were entered into with all officers, including the named executive officers,
to provide for payment by the Company of amounts sufficient to offset any
"excess parachute payment" excise tax payable pursuant to the provisions of
the Internal Revenue Code or any comparable provisions of state law. The
Company's 401(k) plan also was amended to provide for full vesting of all
participant accounts immediately prior to a change in control. Stock option
agreements entered into subsequent to 1995 also contain provisions for
immediate vesting of options immediately prior to a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Executive and Compensation Committee consists of Mr. Callaway
(Chair) and the following non-employee directors: Messrs. Rosenfield (Vice
Chair), Baker, Jordan and Schreyer and Mrs. Peters. Mr. Callaway also serves
as the Company's Chairman of the Board, President and Chief Executive Officer.
The Company has followed the practice of including the Chief Executive Officer
on the Committee because of the Board's belief that the selection and
motivation of a strong management team is one of the key functions of the
Chief Executive Officer and therefore, the Chief Executive Officer should
participate substantively in executive compensation matters other than his or
her own. Mr. Callaway does not vote or make decisions related to his own
compensation. At all times, Mr. Callaway's participation on the Committee is
monitored with the assistance of the Company's outside and inside counsel to
assure that his participation is legally appropriate.
Mrs. Peters, also a member of the Executive and Compensation Committee, is a
partner with the law firm of Gibson, Dunn & Crutcher. The Company retained the
law firm of Gibson, Dunn & Crutcher to provide legal services to the Company
during 1998, and anticipates that it will retain Gibson, Dunn & Crutcher to
provide legal services in 1999 as well.
Neither Mr. Callaway nor Mrs. Peters participate in decisions relating to
compensation which is intended to be performance-based compensation under
Section 162(m) of the Internal Revenue Code; decisions relating to the setting
of targets or certifying the attainment of targets under performance-based
compensation plans; or decisions relating to the approval or grant of stock
awards intended to be exempt under Section 16 of the Securities Exchange Act
of 1934, as amended, and the rules promulgated thereunder.
18
<PAGE>
Up until October 1998, Donald H. Dye, the Company's former President and
Chief Executive Officer, also was a member of the Executive and Compensation
Committee. During the time that Mr. Dye and Mr. Callaway were members of the
Committee, neither voted upon matters involving their own or each other's
compensation. Mr. Dye's participation on the Committee was legally monitored
and restricted in the same manner as Mr. Callaway's participation described
above.
19
<PAGE>
REPORT OF THE EXECUTIVE AND COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
It has been the policy of the Board of Directors of the Company and its
Founder and Chairman, Ely Callaway, that compensation be tied to performance.
It also is the policy of the Company that significant employee stock-based
compensation motivates the building of shareholder wealth by aligning the
interests of employees with those of shareholders. This philosophy is evident
not only in the compensation levels of the top executives discussed in this
report, but also in the overall compensation structure used by Callaway Golf
for all employees.
1998 EXECUTIVE COMPENSATION PROGRAM
In 1998, the Board retained the services of KPMG, a consulting firm with
expertise in executive compensation, to assist in developing the Company's
1998 Executive Compensation Program ("1998 Program"). As a result, the Company
continued its emphasis on variable pay for officers based on Company
performance and toward placing a premium on the creation of long-term
shareholder value through the award of long-term stock-based incentives. In
line with these principles, the elements of the 1998 Program included limited
base salary increases, a discretionary bonus plan (the "Discretionary Bonus
Plan") and the award of stock options in an amount based upon organizational
level. These elements are discussed in further detail in the following
sections.
1998 BASE SALARIES
Under the 1998 Program, executive officer base salaries were increased in
1998 over 1997 amounts only where an officer met one of the following
criteria: (1) the officer's base salary was below an equitable level given the
officer's role and performance; (2) the officer's responsibility had been
increased, or (3) the officer's position was determined to have increased
potential to impact the Company's operating results.
For 1998, of the named executive officers, only Mr. Helmstetter received a
salary increase (from $400,000 to $600,000) in connection with the renewal of
his employment agreement with the Company effective as of January 1, 1998. The
Committee believed Mr. Helmstetter's increase was important in order to bring
him more in line with the base salaries of other senior executive vice
presidents and to recognize the value to the Company's operating results of
his role as chief golf club designer. In addition, the long term employment
agreement between the Company and Mr. Helmstetter was viewed as important to
the Company's future.
1998 OFFICER BONUSES
For the reasons discussed below, no officer bonuses were paid in 1998.
Under the Discretionary Bonus Plan for 1998, the Company had planned to
establish an officer bonus pool to be accrued based upon growth in pre-tax
earnings. The program required at least 10% growth in pre-tax earnings over
the prior year in order to accrue a bonus pool of up to a maximum of 25% of
officer base compensation. At 20% or more growth over the in pre-tax earnings,
the program provided for an accrual of up to a maximum of 75% of officer base
compensation. Within the bonus pool accrual, individual officers of the
Company and Callaway Golf Ball Company were eligible to receive discretionary
cash bonuses for 1998. Officer bonus amounts (excluding the Chairman and Chief
Executive Officers) were to be determined based upon the Chief Executive
Officer's view of
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the officer's individual contribution to the Company's performance and various
other factors considered significant by the Chief Executive Officer in his
discretion, subject to final approval of the bonus amounts by the Executive
and Compensation Committee. The discretionary bonuses for the Chairman and
Chief Executive Officer (Messrs. Callaway and Dye) were to be determined and
fixed in the Committee's discretion, without participation by either of them,
based upon the Committee's view of their individual contribution and various
other factors considered significant by the Committee.
The officer bonus plan for 1998 did not include a non-discretionary bonus to
be paid under the Company's 1998 Executive Non-Discretionary Bonus Plan and
accordingly the Committee did not set targets for payment of bonuses under
that plan.
As the Company did not achieve any growth in pre-tax earnings in 1998, no
bonuses were accrued or paid to any officer in 1998 under the Discretionary
Bonus Plan.
1998 STOCK OPTION AWARDS
The final element of the 1998 Program was the award of long-term incentives
in the form of stock options. Officers of the Company and Callaway Golf Ball
Company were granted options based on their organizational level within the
Company (ranging from Vice President to Senior Executive Vice President and
above). Except for Mr. Helmstetter, named executive officers at the Executive
Vice President level or higher (Messrs. Callaway, Parker, Port and Yash) were
each granted 150,000 options in February 1998 at an exercise price of $27.375
per share. Mr. Helmstetter was excluded from this grant because he received a
grant of 250,000 options at an exercise price of $31.00 in connection with the
renewal of his employment agreement with the Company effective as of January
1, 1998. Mr. Dye was also excluded because he received a significant grant in
connection with the renewal of his employment agreement with the Company in
1997.
CEO COMPENSATION
Mr. Callaway reassumed the role of President and Chief Executive Officer of
the Company when Mr. Dye was terminated effective October 1998. Mr. Callaway's
compensation for 1998 was determined in accordance with the 1998 Program and
pursuant to his existing employment agreement with the Company effective as of
January 1, 1997 through December 31, 1999 (see section entitled "Employment
Agreements and Termination of Employment Arrangements--Mr. Callaway" in this
Proxy Statement). Mr. Dye's compensation for 1998 was determined in accordance
with his employment agreement and the arrangement reached with him upon his
separation from the Company (see section entitled "Employment Agreements and
Termination of Employment Arrangements--Mr. Dye" in this Proxy Statement).
DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code limits the deductibility for
federal tax purposes of certain types of executive compensation in excess of
$1.0 million per year. This limitation was not of material significance to the
Company in 1998 because bonuses were not paid to officers for that year. The
Company's 1998 Executive Non-Discretionary Bonus Plan is intended to meet the
requirements for deductibility under Section 162(m) of the Internal Revenue
Code, and the Company generally seeks to maximize the deductibility for tax
purposes of all elements of compensation as appropriate. However, the Company
may from time to time pay or award compensation to its executive officers that
may not be deductible. Further, because of the ambiguities and uncertainties
as to the application
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and interpretation of Section 162(m) and the regulations issued thereunder, no
assurance can be given, notwithstanding the efforts of the Company in this
area, that compensation intended by the Company to satisfy the requirements
for deductibility under Section 162(m) does in fact do so.
SUMMARY
To conclude this report, we want to emphasize that officer cash compensation
in 1998 was reduced significantly as compared to 1997, in part because of the
Company's disappointing 1998 performance. Specifically, executive officer cash
compensation (excluding Mr. Dye's separation payments made in connection with
his termination) was on average reduced by over 26% in 1998 as compared to
1997 due primarily to the absence of bonuses. In addition, executive officers
experienced a significant loss in value of previously granted stock-based
compensation. As of this time, the Committee has not elected to re-price
incentive stock options previously granted to officers. It is the opinion of
the Committee that the 1998 Program achieved the Board's long-standing policy
that officer compensation be tied to Company performance and shareholder
interests.
Additional information concerning the salary, bonus, and stock awards for
the Company's senior executive officers can be found in the tables appearing
under the section entitled "Compensation of Executive Officers" in this Proxy
Statement.
Information contained in this report regarding past performance of the
Company and performance targets for future bonus purposes should under no
circumstances be construed as a prediction, forecast, or projection by the
Company of future results, and no assurance can be given that the Company will
or will not achieve or maintain any particular performance level.
THE EXECUTIVE AND COMPENSATION COMMITTEE
Ely Callaway, Chair
Richard Rosenfield, Vice Chair
William C. Baker
Vernon E. Jordan, Jr.
Aulana L. Peters
William A. Schreyer
March 31, 1999
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PERFORMANCE GRAPH
The following chart presents a comparison of the cumulative total return
since December 31, 1993 of the Company's Common Stock, the Standard & Poors
500 Index and the Standard & Poors 400 Midcap Index. The graph assumes an
initial investment of $100 at December 31, 1993 and reinvestment of all
dividends.
TOTAL CUMULATIVE SHAREHOLDER RETURN SINCE DECEMBER 31, 1993
PERFORMANCE GRAPH APPEARS HERE
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CALLAWAY GOLF
S&P 500 INDEX AND S&P FINANCIAL INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period CALLAWAY S&P S&P
(Fiscal Year Covered) GOLF 500 INDEX 400 MIDCAP
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/1993 $100.00 $100.00 $100.00
FYE 12/31/1994 $124.808 $101.320 $ 96.410
FYE 12/31/1995 $172.792 $139.340 $126.220
FYE 12/31/1996 $221.513 $171.320 $150.470
FYE 12/31/1997 $221.907 $228.460 $198.980
FYE 12/31/1998 $ 80.999 $293.740 $236.960
</TABLE>
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REINCORPORATION IN DELAWARE
INTRODUCTION
The Company was originally formed as a California corporation based largely
upon the location of its headquarters. At the time, the Company was closely
held and much smaller. The Board of Directors believes that the Company's
current size and status as a publicly-traded company make it appropriate and
advisable to change the state of incorporation of the Company from California
to Delaware (the "Reincorporation Proposal" or the "Proposed
Reincorporation"). As discussed below, the principal reasons for
reincorporation are the greater flexibility of Delaware corporate law, the
substantial body of case law interpreting Delaware corporate law and the
increased ability of the Company to attract and retain qualified directors.
The Company believes that its shareholders will benefit from the certainty
afforded by the well-established principles of corporate governance under
Delaware law.
Delaware law provides the opportunity for the Board of Directors to adopt
various mechanisms which may enhance the Board's ability to negotiate
favorable terms for the shareholders in the event of an unsolicited takeover
attempt. However, the Company is not adopting these additional anti-takeover
provisions at this time. Accordingly, except for an increase in the maximum
size of the Board of Directors from 11 to 15, the proposed Delaware
certificate of incorporation and bylaws are substantially similar to those
currently in effect in California. The Company desires an increased maximum
board size to provide the flexibility to have additional directors.
The Reincorporation Proposal is not being proposed in order to prevent an
unsolicited takeover attempt, nor is it in response to any present attempt
known to the Board of Directors to acquire control of the Company, obtain
representation on the Board of Directors or take significant action that
affects the Company. Shareholders are urged to read carefully the following
sections of this Proxy Statement, including the related exhibits, before
voting on the Reincorporation Proposal. Throughout this portion of the Proxy
Statement, the term "Callaway Golf California" refers to the existing
California corporation and the term "Callaway Golf Delaware" refers to the new
proposed Delaware corporation, a wholly-owned subsidiary of Callaway Golf
California, which is the proposed successor to Callaway Golf California.
The Reincorporation Proposal will be effected by merging Callaway Golf
California into Callaway Golf Delaware (the "Merger"). Upon completion of the
Merger, Callaway Golf California will cease to exist and Callaway Golf
Delaware will continue to operate the business of the Company under the name
Callaway Golf Company. Pursuant to the Agreement and Plan of Merger between
Callaway Golf California and Callaway Golf Delaware, a copy of which is
attached hereto as Appendix A (the "Merger Agreement"), each outstanding share
of Callaway Golf California Common Stock, $.01 par value, will automatically
be converted into one share of Callaway Golf Delaware Common Stock, $.01 par
value. IT IS NOT NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING STOCK
CERTIFICATES FOR STOCK CERTIFICATES OF CALLAWAY GOLF DELAWARE.
Upon the date on which the Merger is effective (the "Effective Date"),
Callaway Golf Delaware also will assume and continue the outstanding stock
options and all other employee benefit plans of Callaway Golf California. Each
outstanding and unexercised option, warrant or other right to purchase shares
of Callaway Golf California Common Stock will become an option, warrant or
right to purchase the same number of shares of Callaway Golf Delaware Common
Stock on the same terms and conditions and at the same exercise price
applicable to any such Callaway Golf California option, warrant or right at
the Effective Date.
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The Proposed Reincorporation has been unanimously approved by the Board of
Directors. If approved by the shareholders, it is anticipated that the
Effective Date of the Merger will be as soon as practicable following the
Annual Meeting of Shareholders. However, pursuant to the Merger Agreement, the
Merger may be abandoned or the Merger Agreement may be amended by the Board of
Directors (except that certain principal terms may not be amended without
further shareholder approval) either before or after shareholder approval has
been obtained and prior to the Effective Date of the Proposed Reincorporation
if, in the opinion of the Board of Directors, circumstances arise that make it
inadvisable to proceed or necessitate amendment.
Shareholders of Callaway Golf California will have no dissenters' rights of
appraisal with respect to the Reincorporation Proposal. The discussion set
forth below is qualified in its entirety by reference to the Merger Agreement,
the Certificate of Incorporation and the Bylaws of Callaway Golf Delaware,
copies of which are attached hereto as Appendix A, Appendix B and Appendix C,
respectively.
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
As the Company plans for the future, the Board of Directors and management
believe that it is essential to be able to draw upon well-established
principles of corporate governance in making legal and business decisions. The
prominence and predictability of Delaware corporate law provide a more
reliable foundation on which the Company's governance decisions can be based
and the Company believes that shareholders will benefit from the
responsiveness of Delaware corporate law.
Prominence, Predictability and Flexibility of Delaware Law. For many years
Delaware has followed a policy of encouraging incorporation in that state and,
in furtherance of that policy, has been a leader in adopting, construing and
implementing comprehensive, flexible corporate laws responsive to the legal
and business needs of corporations organized under its jurisdiction. Many
corporations have chosen Delaware initially as a state of incorporation or
have subsequently changed corporate domicile to Delaware in a manner similar
to that proposed by the Company. Because of Delaware's prominence as the state
of incorporation for many major corporations, both the legislature and courts
in Delaware have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have
developed considerable expertise in dealing with corporate issues and a
substantial body of case law has developed construing Delaware law and
establishing public policies with respect to corporate legal affairs.
Increased Ability to Attract and Retain Qualified Directors. Both California
and Delaware law permit a corporation to include a provision in its charter
documents which reduces or limits the monetary liability of directors for
breaches of fiduciary duty in certain circumstances. However, the Company
believes that, in general, Delaware law provides greater protection to
directors than California law and that Delaware case law regarding a
corporation's ability to limit director liability is more developed and
provides more guidance than California law. See "The Charter Documents of
Callaway Golf California and Callaway Golf Delaware--Monetary Liability of
Directors." The Company believes that obtaining the protections available
under Delaware law will assist it in keeping and attracting well-qualified
directors. The increasing frequency of claims and litigation directed against
directors and officers, many of which prove to be unfounded, has greatly
expanded the perceived risks facing directors and officers of corporations in
exercising their respective duties, particularly because the amount of time
and money required to respond to such claims and to defend such litigation,
even if frivolous, can be substantial. Although the Company has not
experienced difficulty in attracting and retaining qualified directors to
date, it is the Company's desire to reduce these risks to its directors and
officers and to limit situations in which monetary damages can be sought
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against directors personally so that the Company may continue to attract and
retain qualified directors who otherwise might be unwilling to serve because
of the risks involved.
Well Established Principles of Corporate Governance. There is substantial
judicial precedent in the Delaware courts as to the legal principles
applicable to measures that may be taken by a corporation and as to the
conduct of the Board of Directors under the business judgment rule. The
Company believes that the Company and its shareholders will benefit from the
certainty afforded by the well-established principles of corporate governance
under Delaware law.
No Change in the Name, Board Members, Business, Management, Employee Plans
or Location of Principal Facilities of the Company. The Reincorporation
Proposal will effect a change in the legal domicile of the Company, but not
its physical location. The Proposed Reincorporation will not result in any
change in the name, business, management, fiscal year, assets or liabilities
(except to the extent of legal and other costs of effecting the
reincorporation) or location of the principal facilities of the Company. The
ten directors who are elected at the 1999 Annual Meeting of Shareholders will
become the directors of Callaway Golf Delaware. All employee benefit plans of
Callaway Golf California will be assumed and continued by Callaway Golf
Delaware. All stock options, warrants or other rights to acquire Common Stock
of Callaway Golf California will automatically be converted into an option,
warrant or right to purchase the same number of shares of Callaway Golf
Delaware Common Stock at the same price per share, upon the same terms, and
subject to the same conditions. Callaway Golf California's other employee
benefit arrangements also will be continued by Callaway Golf Delaware upon the
terms and subject to the conditions currently in effect.
THE CHARTER DOCUMENTS OF CALLAWAY GOLF CALIFORNIA AND CALLAWAY GOLF DELAWARE
Except for an increase in the maximum size of the Board of Directors from 11
to 15, the provisions of the Callaway Golf Delaware Certificate of
Incorporation and Bylaws are substantially similar to those of the Callaway
Golf California Articles of Incorporation and Bylaws. However, although it has
no present intention of doing so, Callaway Golf Delaware could implement
certain other changes by amending its Certificate of Incorporation and Bylaws
in the future. For a discussion of such changes, see "Significant Differences
Between the Corporation Laws of California and Delaware."
Authorized Shares. The Articles of Incorporation of Callaway Golf California
currently authorize the Company to issue up to 240,000,000 shares of Common
Stock, $.01 par value, and 3,000,000 shares of Preferred Stock, $.01 par
value, of which 240,000 shares are designated Series A Junior Participating
Preferred Stock in connection with the Company's shareholder rights plan (the
"Rights Plan"). None of Callaway Golf California's Series A Junior
Participating Preferred Shares have been issued. The Certificate of
Incorporation of Callaway Golf Delaware provides that Callaway Golf Delaware
similarly will have 240,000,000 authorized shares of Common Stock, $.01 par
value, and 3,000,000 shares of Preferred Stock, $.01 par value, of which
240,000 shares would be designated as Series A Junior Participating Preferred
Stock in connection with the Rights Plan. Like Callaway Golf California's
Articles of incorporation, Callaway Golf Delaware's Certificate of
Incorporation provides that the Board of Directors is entitled to determine
the powers, preferences and rights, and the qualifications, limitations or
restrictions, of the authorized and unissued Preferred Stock. Thus, although
it has no present intention of doing so, the Board of Directors, without
shareholder approval, could authorize the issuance of Preferred Stock upon
terms which could have the effect of delaying or preventing a change in
control of the Company or modifying the rights of holders of the Company's
Common Stock under either California or Delaware law. The Board of Directors
also could utilize
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<PAGE>
such shares for future financings, possible acquisitions and other uses under
either California or Delaware law.
Monetary Liability of Directors. The Articles of Incorporation of Callaway
Golf California and the Certificate of Incorporation of Callaway Golf Delaware
both provide for the elimination of personal monetary liability of directors
to the fullest extent permissible under law. The provision eliminating
monetary liability of directors set forth in the Callaway Golf Delaware
Certificate of Incorporation is potentially more expansive than the
corresponding provision in the Callaway Golf California Articles of
Incorporation in that Delaware law permits indemnification to occur with
respect to certain actions that California does not and under certain
circumstances Delaware does not require the director or officer to prevail in
an action in order for indemnification to be available. However, under both
California and Delaware law, the Company generally may not indemnify directors
or officers for all acts, such as acts or omissions found to be in bad faith,
or knowing violations of law. See "Significant Differences Between the
Corporation Laws of California and Delaware--Indemnification and Limitation of
Liability." In connection with the Proposed Reincorporation, the Company will
be amending its existing indemnification agreements to be governed by Delaware
law.
Size of the Board of Directors. The Bylaws of Callaway Golf Delaware provide
for a Board of Directors consisting of from six to fifteen directors. The
Bylaws of Callaway Golf California provide for a Board of Directors of from
six to eleven members, with the exact number currently set at ten directors.
The Company desires an increased maximum board size to provide the flexibility
to have additional directors.
Under California law, although changes in the number of directors must be
approved by a majority of the outstanding shares, the Board of Directors may
fix the exact number of directors within a stated range set forth in the
articles of incorporation or bylaws, if the stated range has been approved by
the shareholders. Delaware law permits the board of directors acting alone, to
change the authorized number of directors by amendment to the bylaws, unless
the directors are not authorized to amend the bylaws or the number of
directors is fixed in the certificate of incorporation (in which case a change
in the number of directors may be made only by amendment to the certificate of
incorporation following approval of such change by the shareholders). The
Callaway Golf Delaware Certificate of Incorporation provides that the number
of directors will be specified in the Bylaws and authorizes the Board of
Directors to adopt, alter, amend or repeal the Bylaws. Thus, following the
Proposed Reincorporation, the Board of Directors of Callaway Golf Delaware
could amend the Bylaws to change the size of the Board of Directors without
further shareholder approval.
If the Reincorporation Proposal is approved, the ten directors of Callaway
Golf California who are elected at the 1998 Annual Meeting of Shareholders
will continue as the ten directors of Callaway Golf Delaware after the
Proposed Reincorporation is consummated.
Cumulative Voting for Directors. Under California law, if any shareholder
has given notice of an intention to cumulate votes for the election of
directors, any other shareholder of the corporation also is entitled to
cumulate his or her votes at such election. Under Delaware law, cumulative
voting in the election of directors is not mandatory, but is a permitted
option. The Callaway Golf Delaware Certificate of Incorporation provides for
cumulative voting rights and thus the voting rights are unchanged from those
of the Callaway Golf California Articles of Incorporation.
Power To Call Special Shareholders' Meetings. Under California law, a
special meeting of shareholders may be called by the Board of Directors, the
Chairman of the Board, the President, the
27
<PAGE>
holders of shares entitled to cast not less than ten percent (10%) of the
votes at such meeting, and such additional persons as are authorized by the
Articles of Incorporation or the Bylaws. The Bylaws of Callaway Golf
California authorize the Board of Directors, the Chairman of the Board, the
President, and the holders of shares entitled to cast not less than ten
percent (10%) of the votes at such meeting to call a special meeting of
shareholders. Under Delaware law, a special meeting of stockholders may be
called by the Board of Directors or by any other person authorized to do so in
the Certificate of Incorporation or the Bylaws. The Bylaws of Callaway Golf
Delaware authorize the Board of Directors, the Chairman of the Board, the
President, and the holders of shares entitled to cast not less than ten
percent (10%) of the votes at such meeting to call a special meeting of
stockholders. Thus, the right to call special shareholders' meetings is
unchanged from those of the Bylaws of Callaway Golf California.
Removal of Directors. Pursuant to Section 141 of the Delaware General
Corporation Law, if a corporation's shareholders may cumulate their votes for
directors, a director may not be removed without cause (unless the entire
Board is being removed) if the number of votes cast against such director's
removal would be sufficient to elect such director under cumulative voting. As
the shareholders of Callaway Golf Delaware will be entitled to cumulate their
votes for the election of directors, like the shareholders of Callaway Golf
California, the limitations on removal of directors shall apply to Callaway
Golf Delaware. The limitations imposed by Section 303 of the California
Corporations Code are substantially similar to those set forth under Delaware
General Corporation Law Section 141 for a corporation with cumulative voting.
Pursuant to Section 303 of the California Corporations Code, no director may
be removed without cause (unless the entire board is removed) when the votes
cast against his or her removal would be sufficient to elect the director if
voted cumulatively at an election at which the same total number of votes were
cast and the entire number of directors authorized at the time of the
director's most recent election were then being elected. Callaway Golf
Delaware intends to retain cumulative voting for directors in order to
parallel the current provisions under the existing charter documents of
Callaway Golf California.
Filling Vacancies on the Board of Directors. Under California law, any
vacancy on the Board of Directors other than one created by removal of a
director may be filled by the Board. If the number of directors is less than a
quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the
directors at a meeting held pursuant to notice or waivers of notice or by a
sole remaining director. A vacancy created by removal of a director may be
filled by the Board only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders.
Callaway Golf California's Articles of Incorporation and Bylaws permit
directors to fill vacancies created by removal of a director unless such
director was removed by the shareholders. Under Delaware law, vacancies and
newly created directorships may be filled by a majority of the directors then
in office (even though less than a quorum) or by a sole remaining director,
unless otherwise provided in the certificate of incorporation or bylaws (or
unless the certificate of incorporation directs that a particular class of
stock is to elect such director(s), in which case a majority of the directors
elected by such class, or a sole remaining director so elected, shall fill
such vacancy or newly created directorship). In connection with the Proposed
Reincorporation, the Board of Directors of Callaway Golf Delaware will adopt a
provision in Callaway Golf Delaware's Bylaws that permits the remaining
directors to fill any vacancy.
Requirement of Advance Notice. Callaway Golf California's Bylaws provide an
advance notice procedure for shareholders with regard to the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as directors and with regard to certain matters to be brought
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before an annual meeting of shareholders. For nomination of directors or other
business, a shareholder must submit written notice of such nomination to the
principal executive offices of Callaway Golf California not less than sixty
(60) days nor more than one hundred twenty (120) days prior to the scheduled
annual meeting. If less than seventy (70) days notice or prior public
disclosure of the date of the scheduled annual meeting is given, the
shareholder must submit notice on the tenth day following the earlier of the
day on which notice of the date of the scheduled meeting was mailed, or the
day on which public disclosure of the meeting was made.
Callaway Golf Delaware's Bylaws also provide for an advance notice procedure
for nomination of directors and other business. To be timely, a shareholder
must submit written notice to the principal executive offices of Callaway Golf
Delaware not later than ninety (90) days nor earlier than one hundred twenty
(120) days prior to the first anniversary of the preceding year's annual
meeting. In the event the annual meeting is thirty (30) days before or more
than sixty (60) days after such anniversary date, the shareholder must submit
written notice not earlier than one hundred twenty (120) days prior to such
annual meeting, and not later than ninety (90) days prior to such annual
meeting, or ten (10) days following the day on which public announcement of
the meeting is made.
Loans to Officers and Employees. Under California law, any loan or guaranty
to or for the benefit of a director or officer of the corporation or its
parent requires approval of the shareholders unless such loan or guaranty is
provided under a plan approved by shareholders owning a majority of the
outstanding shares of the corporation. However, under California law,
shareholders of any corporation with 100 or more shareholders of record, such
as the Company, may approve a bylaw authorizing the board of directors alone
to approve loans or guaranties to or on behalf of officers (whether or not
such officers are directors) if the Board determines that any such loan or
guaranty may reasonably be expected to benefit the corporation. Callaway Golf
California has an officer loan policy that was previously approved by the
shareholders. Under this policy, loans of up to $150,000 may be made in
connection with the purchase of a primary residence. Pursuant to the Callaway
Golf Delaware Bylaws and in accordance with Delaware law, Callaway Golf
Delaware may make loans to, guarantee the obligations of or otherwise assist
its officers or other employees and those of its subsidiaries (including
directors who also are officers or employees) when such action, in the
judgment of the Board of Directors, may reasonably be expected to benefit the
corporation.
Actions by Written Consent of Shareholders. Under California and Delaware
law, shareholders may execute an action by written consent in lieu of a
shareholder meeting. Both the Callaway Golf California Articles of
Incorporation and Bylaws and the Callaway Golf Delaware Certificate of
Incorporation and Bylaws permit action by written consent of shareholders in
lieu of a meeting.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND
DELAWARE
The corporation laws of California and Delaware differ in many respects.
Although all the differences are not set forth in this Proxy Statement,
certain provisions, which could materially affect the rights of shareholders,
are discussed below.
Shareholder Rights Plan. In June 1995, the Board of Directors of Callaway
Golf California adopted the Rights Plan. Pursuant to the Rights Plan, Callaway
Golf California declared a dividend of one Preferred Share Purchase Right (a
"Right") for each outstanding share of Common Stock and each share of Common
Stock issued thereafter. Initially, each Right entitles holders of Common
Stock to purchase from Callaway Golf California one-thousandth of a share of
Series A Preferred at an
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exercise price of $75.00, subject to adjustment. The Rights are not
exercisable until the occurrence of specified events.
The Rights will become exercisable only if a person or group acquires 15% or
more of the Company's Common Stock (subject to certain limitations) or
announces a tender offer or exchange offer which would result in its ownership
of 15% or more of the Common Stock. Ten days after such acquisition or offer,
each Right becomes exercisable at the Right's then current exercise price for
shares of Common Stock of the Company (or, in certain circumstances as
determined by the Board of Directors, a combination of cash, property, Common
Stock or other securities) having a value of twice the Right's exercise price.
Alternatively, if the Company is involved in a merger or other business
combination transaction with another person ten or more days after such
acquisition or offer, each Right becomes exercisable, at the Right's then
current exercise price, for shares of common stock of such other person having
a value of twice the Right's exercise price. The Rights are redeemable up to
ten days following the announcement of such acquisition or offer, subject to
extension by the Board of Directors, at a price of $0.01 per Right. The Rights
Plan expires on June 20, 2005 unless the Rights are earlier redeemed by the
Company.
The Rights Plan is intended to protect the shareholders in the event of an
unfair or coercive offer to acquire, or the acquisition of, 15% or more of the
Common Stock of Callaway Golf California. The Rights are not intended to
prevent a takeover of the Company and will not interfere with any tender offer
or business combination approved by the Board of Directors. The Rights Plan
encourages persons seeking control of the Company to initiate such an
acquisition or offer to acquire through arm's-length negotiations with the
Board of Directors.
The Rights Plan will be assumed by Callaway Golf Delaware pursuant to the
terms of the Merger Agreement. In the past, Delaware courts have upheld the
validity of plans such as the Rights Plan. To date, the California courts have
not considered the validity of such a plan. While the Company believes that
the Rights Plan is likely to be upheld under California law in the event of a
challenge, such an outcome is believed to be even more likely if the
Reincorporation Proposal is effected and Callaway Golf California is merged
into Callaway Golf Delaware.
Indemnification and Limitation of Liability. California and Delaware have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit,
with certain exceptions, a corporation to adopt a provision in its articles of
incorporation or certificate of incorporation, as the case may be, eliminating
the liability of a director to the corporation or its shareholders for
monetary damages for breach of the director's fiduciary duty. There are
nonetheless certain differences between the laws of the two states respecting
indemnification and limitation of liability.
California law does not permit the elimination of monetary liability where
such liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders, or that
involve the absence of good faith on the part of the director; (c) receipt of
an improper personal benefit; (d) acts or omissions that show reckless
disregard for the director's duty to the corporation or its shareholders,
where the director in the ordinary course of performing a director's duties
should be aware of a risk of serious injury to the corporation or its
shareholders; (e) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders; (f) interested transactions between the
corporation and a director in which a director has a material financial
interest; and (g) liability for improper distributions, loans or guarantees.
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Delaware law permits a corporation to eliminate the liability of directors
to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permissible under Delaware
law, as such law exists currently or as it may be amended in the future.
However, such provision may not eliminate or limit director monetary liability
for: (a) breaches of the director's duty of loyalty to the corporation or its
shareholders; (b) acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law; (c) the payment of unlawful dividends
or unlawful stock repurchases or redemptions; or (d) transactions in which the
director received an improper personal benefit. Such limitation of liability
provisions also may not limit a director's liability for violation of, or
otherwise relieve a corporation or its directors from the necessity of
complying, with federal or state securities laws, or affect the availability
of non-monetary remedies such as injunctive relief or rescission.
California law permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (a) no
indemnification may be made when a person is adjudged liable to the
corporation in the performance of that person's duty to the corporation and
its shareholders unless a court determines such person is entitled to
indemnity for expenses, and then such indemnification may be made only to the
extent that such court shall determine, and (b) no indemnification may be made
without court approval in respect of amounts paid or expenses incurred in
settling or otherwise disposing of a threatened or pending action or amounts
incurred in defending a pending action that is settled or otherwise disposed
of without court approval. California law requires indemnification when the
individual has defended successfully the action on the merits.
Delaware law generally permits indemnification of expenses, including
attorney's fees, actually and reasonably incurred in the defense or settlement
of a derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably
believed to be in or (in contrast to California law) not opposed to the best
interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct in the performance of
his or her duty to the corporation. Delaware law requires indemnification of
expenses when the individual being indemnified has successfully defended any
action, claim, issue, or matter therein, on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Delaware law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that
he or she is not entitled to indemnification. In addition, the laws of both
states authorize a corporation's purchase of indemnity insurance for the
benefit of its officers, directors, employees and agents whether or not the
corporation would have the power to indemnify against the liability covered by
the policy.
California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's articles of incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or bylaw provisions, which make mandatory the permissive
indemnification provided by California law. Under California law, there are
two limitations on such additional rights to indemnification: (i) such
indemnification is not permitted for acts, omissions or transactions from
which a director of a California corporation may not be relieved of personal
liability, as described above; and (ii) such indemnification is not permitted
in circumstances where California law expressly prohibits indemnification, as
described above.
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Delaware law also permits a Delaware corporation to provide indemnification
in excess of that provided by statute. By contrast to California law, Delaware
law does not require authorizing provisions in the certificate of
incorporation and does not contain express prohibitions on indemnification in
certain circumstances; however, limitations on indemnification may be imposed
by a court based on principles of public policy. A provision of Delaware law
states that the indemnification provided by statute shall not be deemed
exclusive of any other rights under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise.
Inspection of Shareholder List. Both California and Delaware law allow any
shareholder to inspect the shareholder list for a purpose reasonably related
to such person's interest as a shareholder. California law provides, in
addition, for an absolute right to inspect and copy the corporation's
shareholder list by persons holding an aggregate of five percent (5%) or more
of a corporation's voting shares, or shareholders holding an aggregate of one
percent (1%) or more of such shares who have filed a Schedule 14A with the
Securities and Exchange Commission in connection with a contested election of
directors. Under California law, such absolute inspection rights also apply to
a corporation formed under the laws of any other state if its principal
executive offices are in California or if it customarily holds meetings of its
board in California. Delaware law also provides for inspection rights as to a
list of shareholders entitled to vote at a meeting within a ten-day period
preceding a shareholders' meeting for any purpose germane to the meeting.
However, Delaware law contains no provisions comparable to the absolute right
of inspection provided by California law to certain shareholders.
Dividends and Repurchases of Shares. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus are
retained under Delaware law.
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares,
other than repurchases of its shares issued under employee stock plans
contemplated by Section 408 of the California Corporations Code) unless either
(i) the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution or (ii)
immediately after giving effect to such distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1.25 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current
liabilities (or 1.25 times its current liabilities if the average pre-tax and
pre-interest expense earnings for the preceding two fiscal years were less
than the average interest expense for such years). Such tests are applied to
California corporations on a consolidated basis.
Delaware law permits a corporation to declare and pay dividends out of the
excess, if any, at any given time, of the net assets of the corporation over
the amount of capital of the corporation ("surplus"), or, if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or for the preceding fiscal year as long as the amount of capital
of the corporation following the declaration and payment of the dividend is
not less than the aggregate amount of the capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets. With respect to capital, a board of directors may determine that
capital is equal to the aggregate par value of the corporation's shares of
capital stock. In addition, Delaware law generally provides that a corporation
may redeem or repurchase its shares only if the capital of the corporation is
not impaired and such redemption or repurchase would not impair the capital of
the corporation.
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Shareholder Voting. Both California and Delaware law generally require that
a majority of the shareholders of both acquiring and target corporations
approve statutory mergers. Delaware law does not require a shareholder vote of
the surviving corporation in a merger (unless the corporation provides
otherwise in its certificate of incorporation) if (a) the merger agreement
does not amend the existing certificate of incorporation, (b) each share of
the stock of the surviving corporation outstanding immediately before the
effective date of the merger is an identical outstanding or treasury share
after the merger, and (c) either no shares of common stock of the surviving
corporation and no shares, securities or obligations convertible into such
stock are to be issued or delivered under the plan of merger, or the
authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed twenty
percent (20%) of the shares of common stock of such constituent corporation
outstanding immediately prior to the effective date of the merger. California
law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both California law and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved
by a majority vote of each class of shares outstanding. In contrast, Delaware
law generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares. As a result, shareholder approval of such
transactions may be easier to obtain under Delaware law for companies that
have more than one class of shares outstanding.
California law also requires that holders of nonredeemable common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than fifty percent (50%) but less than ninety percent (90%) of
such common stock or its affiliate unless all of the holders of such common
stock consent to the transaction. This provision of California law may have
the effect of making a "cash-out" merger by a majority shareholder more
difficult to accomplish.
California law provides that, except in certain circumstances, when a tender
offer or a proposal for a reorganization or for a sale of assets is made by an
interested party (generally a controlling or managing person of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to
shareholders.
This fairness opinion requirement does not apply to a corporation that does
not have shares held of record by at least 100 persons, or to a transaction
that has been qualified under California state securities laws. Further, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to
withdraw any vote, consent or proxy, or to withdraw any tendered shares.
Delaware law has no comparable provision.
Voting by Ballot. California law provides that the election of directors may
proceed in the manner described in a corporation's bylaws. Callaway Golf
California's Bylaws provide that the election of directors at a shareholders'
meeting may be by voice vote or ballot, unless prior to such vote a
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shareholder demands a vote by ballot, in which case such vote must be by
ballot. Under Delaware law, the right to vote by written ballot may be
restricted if so provided in the Certificate of Incorporation. The Bylaws of
Callaway Golf Delaware do not address election by ballot, but the Certificate
of Incorporation of Callaway Golf Delaware provides that elections of
directors need not be by written ballot unless the Bylaws provide that
elections shall be by ballot. Shareholders of Callaway Golf Delaware may
therefore continue to demand election by ballot, unless and until the
Certificate of Incorporation is amended to prohibit it, which amendment would
require a majority shareholder vote. It may be more difficult for a
shareholder to contest the outcome of a vote that has not been conducted by
written ballot.
Interested Director Transactions. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable because of such interest
provided that certain conditions, such as obtaining the required approval and
fulfilling the requirements of good faith and full disclosure, are met. With
certain exceptions, the conditions are similar under California and Delaware
law. Under California and Delaware law (a) either the shareholders or the
board of directors must approve any such contract or transaction after full
disclosure of the material facts, and, in the case of board approval, the
contract or transaction also must be "just and reasonable" (in California) or
"fair" (in Delaware) to the corporation or (b) the contract or transaction
must have been just and reasonable or fair as to the corporation at the time
it was approved. In the latter case, California law explicitly places the
burden of proof on the interested director. Under California law, if
shareholder approval is sought, the interested director is not entitled to
vote his shares at a shareholder meeting with respect to any action regarding
such contract or transaction. If board approval is sought, the contract or
transaction must be approved by a majority vote of a quorum of the directors,
without counting the vote of any interested directors (except that interested
directors may be counted for purposes of establishing a quorum). Under
Delaware law, if board approval is sought, the contract or transaction must be
approved by a majority of the disinterested directors (even if the
disinterested directors are less than a quorum). Therefore, certain
transactions that the Board of Directors of Callaway Golf California might not
be able to approve because of the number of interested directors, could be
approved by a majority of the disinterested directors of Callaway Golf
Delaware, although less than a majority of a quorum. The Company is not aware
of any plans to propose any transaction involving directors of the Company
that could not be so approved under California law but could be so approved
under Delaware law.
Shareholder Derivative Suits. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under Delaware law, a shareholder may bring a derivative action
on behalf of the corporation only if the shareholder was a shareholder of the
corporation at the time of the transaction in question or if his or her stock
thereafter was transferred to him or her by operation of law. California law
also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware does not have a similar bonding requirement.
Dissenters' Rights. Under both California and Delaware law, a shareholder of
a corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to dissenters' rights of appraisal pursuant
to which such shareholder may receive cash in the amount of the fair market
value of his or her shares in lieu of the consideration he or she would
otherwise receive in the transaction. Under Delaware law, such fair market
value is determined exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation, and such
appraisal rights are not available (a) with respect to the sale, lease or
exchange of all or substantially
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all of the assets of a corporation, (b) with respect to a merger or
consolidation by a corporation the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders
if such shareholders receive only shares of the surviving corporation or
shares of any other corporation that are either listed on a national
securities exchange or held of record by more than 2,000 holders, plus cash in
lieu of fractional shares of such corporations, or (c) to shareholders of a
corporation surviving a merger if no vote of the shareholders of the surviving
corporation is required to approve the merger under certain provisions of
Delaware law.
The limitations on the availability of appraisal rights under California law
are different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System generally do not have such appraisal rights unless the
holders of at least five percent (5%) of the class of outstanding shares claim
the right or the corporation or any law restricts the transfer of such shares.
Appraisal rights also are unavailable if the shareholders of a corporation or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity (as will be the case in the Reincorporation Proposal).
Appraisal or dissenters' rights are, therefore, not available to shareholders
of Callaway Golf California with respect to the Reincorporation Proposal.
California law generally affords appraisal rights in sale of asset
reorganizations.
Dissolution. Under California law, shareholders holding fifty percent (50%)
or more of the total voting power may authorize a corporation's dissolution,
with or without the approval of the corporation's board of directors, and this
right may not be modified by the articles of incorporation. Under Delaware
law, unless the board of directors approves the proposal to dissolve, the
dissolution must be approved by all the shareholders entitled to vote thereon.
Only if the dissolution is initially approved by the board of directors may it
be approved by a simple majority of the outstanding shares of the
corporation's stock entitled to vote. In the event of such a board-initiated
dissolution, Delaware law allows a Delaware corporation to include in its
certificate of incorporation a super majority (greater than a simple majority)
voting requirement in connection with dissolutions. Callaway Golf Delaware's
Certificate of Incorporation contains no such super majority voting
requirement, however, and a majority of the outstanding shares entitled to
vote, voting at a meeting at which a quorum is present, would be sufficient to
approve a dissolution of Callaway Golf Delaware that had previously been
approved by its Board of Directors.
Application of the General Corporation Law of California to Delaware
Corporations. Under Section 2115 of the California General Corporation Law,
certain foreign corporations (i.e., corporations not organized under
California law) are placed in a special category if they have characteristics
of ownership and operation which indicate that they have significant contacts
with California. So long as a Delaware or other foreign corporation is in this
special category, and it does not qualify for one of the statutory exemptions,
it is subject to a number of key provisions of the California General
Corporation Law applicable to corporations incorporated in California.
Exemptions from Section 2115 are provided for corporations whose shares are
listed on a major national securities exchange or are traded in the Nasdaq
National Market. The Common Stock of Callaway Golf Delaware will continue to
be traded on the New York Stock Exchange following the reincorporation, and,
accordingly, Callaway Golf Delaware will be exempt from Section 2115.
Anti-Takeover Implications. Delaware, like many other states, permits a
corporation to adopt a number of measures through amendment of the certificate
of incorporation or bylaws or otherwise,
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which measures are designed to reduce a corporation's vulnerability to
unsolicited takeover attempts. One of these measures is Section 203 of the
Delaware General Corporation Law ("Section 203") which restricts certain
"business combinations" with "interested shareholders" for three years
following the date that a person or entity becomes an interested shareholder,
unless the Board of Directors approves the business combination and/or other
requirements are met. This statute could make certain kinds of "unfriendly"
corporate takeovers, or other transactions involving a corporation and one or
more of its significant shareholders, more difficult. The Reincorporation
Proposal is not being proposed in order to prevent an unsolicited takeover
attempt, nor is it in response to any present attempt known to the Board of
Directors to acquire control of the Company, obtain representation on the
Board of Directors or take significant action that affects the Company.
Accordingly, the Company is opting out of Section 203. The Company may later
elect to have Section 203 apply to it upon approval by a majority of the
Company's shareholders.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain federal income tax considerations
that may be relevant to holders of Callaway Golf California Common Stock who
receive Callaway Golf Delaware Common Stock in exchange for their Callaway
Golf California Common Stock as a result of the Proposed Reincorporation. The
discussion does not address all of the tax consequences of the Proposed
Reincorporation that may be relevant to particular Callaway Golf California
shareholders, such as dealers in securities, or those Callaway Golf California
shareholders who acquired their shares upon the exercise of stock options, nor
does it address the tax consequences to holders of options or warrants to
acquire Callaway Golf California Common Stock. Furthermore, no foreign, state,
or local tax considerations are addressed herein. IN VIEW OF THE VARYING
NATURE OF SUCH TAX CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR
HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED
REINCORPORATION, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL OR
FOREIGN TAX LAWS. This discussion is based on the Internal Revenue Code of
1986, as amended (the "Code"), the applicable Treasury Regulations promulgated
thereunder, judicial authority and current administrative rulings and
practices in effect on the date of this Proxy Statement.
The Proposed Reincorporation is expected to qualify as a reorganization within
the meaning of Section 368(a) of the Code, with the following tax
consequences:
(a) No gain or loss will be recognized by holders of Callaway Golf California
Common Stock upon receipt of Callaway Golf Delaware Common Stock pursuant
to the Proposed Reincorporation;
(b) The aggregate tax basis of the Callaway Golf Delaware Common Stock
received by each shareholder in the Proposed Reincorporation will equal
the aggregate tax basis of the Callaway Golf California Common Stock
surrendered in exchange therefor;
(c) The holding period of the Callaway Golf Delaware Common Stock received by
each shareholder of Callaway Golf California will include the period for
which such shareholder held the Callaway Golf California Common Stock
surrendered in exchange therefor, provided that such Callaway Golf
California Common Stock was held by the shareholder as a capital asset at
the time of Proposed Reincorporation; and
(d) No gain or loss will be recognized by Callaway Golf California or Callaway
Golf Delaware in connection with the Proposed Reincorporation.
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The Company has not requested a ruling from the Internal Revenue Service
(the "IRS") or an opinion of counsel with respect to the federal income tax
consequences of the Proposed Reincorporation under the Code. A successful IRS
challenge to the reorganization status of the Proposed Reincorporation would
result in a shareholder recognizing gain or loss with respect to each share of
Callaway Golf California Common Stock exchanged in the Proposed
Reincorporation equal to the difference between the shareholder's basis in
such share and the fair market value, as of the time of the Proposed
Reincorporation, of the Callaway Golf Delaware Common Stock received in
exchange therefor. In such event, a shareholder's aggregate basis in the
shares of Callaway Golf Delaware Common Stock received in the exchange would
equal their fair market value on such date, and the shareholder's holding
period for such shares would not include the period during which the
shareholder held Callaway Golf California Common Stock.
VOTE REQUIRED FOR THE REINCORPORATION PROPOSAL
Approval of the Reincorporation Proposal also will constitute approval of
the (i) Merger Agreement, the Certificate of Incorporation and the Bylaws of
Callaway Golf Delaware and (ii) the assumption of Callaway Golf California's
employee benefit plans and outstanding stock options by Callaway Golf
Delaware. Approval will require the affirmative vote of the holders of a
majority of the outstanding shares of Callaway Golf California Common Stock.
The effect of an abstention or a broker non-vote is the same as that of a vote
against the Reincorporation Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED REINCORPORATION OF
CALLAWAY GOLF COMPANY AS A DELAWARE CORPORATION.
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APPROVAL OF 1999 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
On April 20, 1995, the shareholders approved the adoption of the Callaway
Golf Company 1995 Employee Stock Purchase Plan. A total of 1,500,000 shares of
Common Stock were reserved for issuance under this plan. As of the day after
the most recent purchase made under this plan, February 1, 1999, 392,000
shares remained available for issuance. Based on the purchases made by
employees since the introduction of this plan, the Company anticipates all
shares under this plan will have been purchased in the year 2000.
The Company desires to continue making available to its employees the
benefit represented by an appropriate employee stock purchase plan such as the
Callaway Golf Company 1995 Employee Stock Purchase Plan. Accordingly, on
February 16, 1999, the Board of Directors authorized the adoption, subject to
shareholder approval, of the Callaway Golf Company 1999 Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan, and the rights of
participants to make purchases thereunder, is intended to qualify under the
provisions of Sections 421 and 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). A total of 2,000,000 shares of Common Stock would be
reserved for issuance under the Purchase Plan.
While the Company desires to continue to provide an employee stock purchase
plan to its employees, certain proposed accounting or tax changes may make
this type of plan economically or administratively impracticable. These
changes are uncertain and undecided at this time. Management has concluded it
would be appropriate to assume that the Company will be able to amend the
Purchase Plan to meet any new requirements. However, in the event that this is
not the case, the Company may elect not to implement or to terminate the
Purchase Plan.
No shares of the Company's Common Stock have been sold pursuant to the
Purchase Plan. There are approximately 1,900 employees currently eligible to
participate in the Purchase Plan.
SUMMARY OF THE PURCHASE PLAN
A description of the principal features of the Purchase Plan is set forth
below.
Purpose. The purpose of the Purchase Plan is to maintain a competitive
equity compensation program to attract, motivate, retain and compensate
present and future employees of the Company and certain of its subsidiaries
and to provide an incentive for employees of the Company to acquire a
proprietary interest in the Company through the purchase of Common Stock,
thereby more closely aligning the interests of the employees and the
shareholders.
Administration. The Purchase Plan is administered by a committee (the
"Committee") appointed by the Board consisting of not less than two members of
the Board who are not officers or employees of the Company or any of its
subsidiaries. The Committee shall be composed in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Securities Exchange Act of 1934. All questions of
interpretation of the Purchase Plan are determined by the Committee, whose
decisions are final and binding upon all participants.
Eligibility. Subject to certain limitations imposed by Section 423 of the
Code, any person who is employed by the Company (or any of its majority-owned
subsidiaries that are not excluded from participation by the Committee) for at
least twenty (20) hours per week and more than five (5) months
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in a calendar year are eligible to participate in the Purchase Plan, provided
that the employee has been continuously employed for six (6) months on the
first day of an offering period. Eligible employees will become participants
in the Purchase Plan by delivering to the Company an enrollment agreement
authorizing payroll and/or bonus deductions prior to the applicable offering
period, unless another time for filing the enrollment agreement is set by the
Committee for all eligible employees with respect to a given offering period.
Offering Dates. The Purchase Plan is to be implemented through a series of
24-month offering periods with a new offering period commencing on each
February 1 and August 1 during the term of the Purchase Plan. The first
offering period is to commence on the date on which it is administratively
practicable to commence operation of the Plan as determined by the Board or
Committee. The Committee may later change the duration of the offering periods
without shareholder approval. The last day of each six-month exercise period
during each offering period under the Purchase Plan, i.e., each July 31 and
January 31, will be an exercise date under the Purchase Plan.
Purchase Price. Initially, the purchase price per share at which shares are
sold under the Purchase Plan shall be equal to the lower of 85% of the fair
market value of the Common Stock on the date of commencement of the applicable
24-month offering period or 85% of the fair market value of the Common Stock
on each exercise date of the option. The Committee may change the percentage
rate from 85%; however, it may never be less than 85% (i.e., the discount may
never be greater than 15%). The fair market value of the Common Stock on a
given date will be the closing price of the Common Stock on the New York Stock
Exchange as of such date.
Payment of Purchase Price; Payroll Deductions/Bonus Contributions. The
purchase price of the shares will be accumulated by payroll and/or bonus
deductions during an offering period. The payroll deductions may be any whole
percentage amount between 1% and 15% of a participant's eligible compensation
on each payroll date during the offering period. For purposes of the Purchase
Plan, eligible compensation is defined to include the participant's full base
salary, wages, commissions, overtime pay and shift differentials, but excludes
any bonuses and any payments by the Company or its subsidiaries to any pension
or profit sharing plan, fringe benefits and certain other forms of
extraordinary pay. A participant also may designate all or some bonus pay to
be contributed to the Purchase Plan. A participant may discontinue his or her
participation in the Purchase Plan at any time during the offering period. In
addition, a participant may, no more than two times in any calendar year,
reduce or increase the rate of payroll deductions. Payroll deductions will
commence on the first payday following the offering date, and will continue at
the same rate until the end of the offering period unless the participant
terminates participation in the Purchase Plan or reduces or increases the rate
of the payroll deductions.
In the event that the purchase price per share of Common Stock at the
beginning of any offering period is less than the purchase price per share of
Common Stock at the beginning of any prior offering period which has not yet
ended, the Committee in its discretion may terminate the participation of all
participants in the prior offering period and enroll them in the newly
beginning offering period at the same payroll deduction rate.
Grant of Options. Currently, on the first day of each offering period, each
eligible employee will be granted an option to purchase, on each exercise date
during the offering period, a number of shares of Common Stock determined by
dividing the participant's eligible Purchase Plan contributions accumulated
prior to such exercise date by the purchase price.
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Notwithstanding the foregoing, no employee is permitted to subscribe for
shares under the Purchase Plan if immediately after the grant of the option,
the employee would own 5% or more of the voting power or value of all classes
of stock of the Company or of a parent or of any of its subsidiaries
(including stock which may be purchased under the Purchase Plan or pursuant to
any other options), nor shall any employee be granted an option which would
permit the employee to purchase more than $25,000 worth of stock (determined
based on the fair market value of the shares at the time the option is
granted) under the Purchase Plan in any calendar year.
Exercise of Options. Unless a participant withdraws from the Purchase Plan,
such participant's option to purchase shares will be exercised automatically
on each exercise date of the offering period to purchase the maximum number of
shares (including, except as otherwise provided by the Committee, fractional
shares) that may be purchased at the exercise price with the accumulated
payroll and bonus deductions in the participant's account.
Withdrawal. A participant's interest in a given offering period may be
terminated in whole, but not in part, by signing and delivering to the Company
a notice of withdrawal from the Purchase Plan. The failure to remain in the
continuous employ of the Company or its majority-owned subsidiaries for at
least 20 hours per week during an offering period will be deemed to be a
withdrawal from that offering.
Capital Changes. In the event any change is made in the Company's
capitalization, such as a reorganization, restructuring, reclassification,
stock split or stock dividend, which results in an increase or decrease in the
number of outstanding shares of Common Stock or a change of Common Stock into,
or an exchange of Common Stock for, a different number or kind of shares, the
Committee may authorize appropriate adjustments to be made to the shares
subject to purchase under the Purchase Plan and in the purchase price per
share. In the event of a dissolution or liquidation of the Company, any
options outstanding under the Purchase Plan will terminate unless the
Committee otherwise determines.
Non-transferability. Options to purchase Common Stock under the Purchase
Plan may not be transferred by a participant and may be exercised during a
participant's lifetime only by the participant.
Amendment and Termination of the Plan. The Board of Directors may at any
time amend or terminate the Purchase Plan, except that no amendment may be
made that would cause the Purchase Plan to fail to meet the requirements for
employee stock purchase plans as defined in Section 423 of the Code.
TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and
423 of the Code. This discussion is based on the Code, the applicable Treasury
Regulations promulgated thereunder, judicial authority and current
administrative rules and practices in effect on the date of this Proxy
Statement. Under these provisions, no income will be taxable to a participant
at the time of the grant of the option or purchase of the shares. Upon
disposition of the shares, the participant will generally be subject to tax
and the amount of the tax will depend upon the participant's holding period.
If the shares have been held by the participant for more than two years after
the date of option grant and more than one year after the transfer of the
shares to the participant pursuant to the exercise of the option, the lesser
of (a) the
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excess of the fair market value of the shares at the time of such disposition
over the purchase price for the shares or (b) the excess of the fair market
value of the shares at the time the option was granted over the purchase price
for the shares will be treated as ordinary income, and any further gain will
be treated as long-term capital gain. If the shares are disposed of before the
expiration of these holding periods, the excess of the fair market value of
the shares on the purchase date over the purchase price will be treated as
ordinary income, and any further gain or loss on such disposition will be
long-term or short-term capital gain or loss, depending on the holding period.
The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of ordinary
income reported by participants upon disposition of shares within two years
from date of grant or within one year after the transfer of the shares to the
participants.
The foregoing brief summary of the effect of federal income taxation upon
the participant and the Company with respect to the purchase of shares under
the Purchase Plan does not purport to be complete and reference should be made
to the applicable provisions of the Code. In addition, this summary does not
discuss the provisions of the income tax laws of any municipality, state or
foreign country in which the participant may reside.
PARTICIPATION IN PURCHASE PLAN BY EXECUTIVE OFFICERS AND OTHER EMPLOYEES
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll and bonus deductions. Accordingly, future purchases by
executive officers and other employees under the Purchase Plan are not
determinable.
VOTE REQUIRED
The affirmative vote of the holders of a majority of shares of the Common
Stock represented and voting, in person or by proxy, at the Annual Meeting is
required to approve the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE CALLAWAY GOLF COMPANY 1999 EMPLOYEE STOCK PURCHASE PLAN.
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CERTAIN TRANSACTIONS
The Company has been a party to a product development agreement with
Callaway Advanced Materials, Inc. ("CAM"), a corporation of which Reeves
Callaway, Ely Callaway's son, is an executive officer and in which he owns a
significant equity interest. Under the agreement, CAM is developing
proprietary manufacturing techniques for fabricating metal golf club heads. In
1998, the Company paid a total of approximately $660,000 to CAM in connection
with these development services. In addition, in February 1998, the Company
made a non-interest bearing equipment loan to CAM in the approximate amount of
$288,000, which is due upon termination of the development agreement. The
Company expects to end this agreement in 1999.
In January 1998, the Company announced the formation of Callaway Golf Media
Ventures, LLC ("CGMV") for the purpose of producing print and other media
products that relate to the game of golf. The Company was an 80% owner of
CGMV, with the remaining 20% owned by Callaway Editions, Inc. ("Editions"), a
publishing and media company in which Nicholas Callaway, Ely Callaway's son,
is the chief executive officer and the majority shareholder (about 81%) and
Ely Callaway is a minority shareholder (about 9%). In addition to being an
owner of CGMV, Editions was entitled to receive a management fee of up to
$450,000 per year for services rendered to CGMV. In 1998, Editions received
$450,000 from CGMV out of monies paid to CGMV by the Company.
In connection with the formation of CGMV, the Company made capital
contributions to CGMV in the amount of $900,000. The Company also agreed to
loan to CGMV up to $20 million for working capital, subject to CGMV's
achievement of certain milestones. During 1998, the Company loaned
approximately $2 million to CGMV under this agreement. In August 1998, the
Company guarantied CGMV's lease of office space in New York.
In November 1998, following a review of the Company's operations and a
decision to focus on its core golf club business and its golf ball business,
the Company decided to withdraw from activities outside these areas including
ending its involvement with CGMV.
In February 1999, the office space lease was terminated and the Company was
released from its guaranty in exchange for the issuance of a $90,000 letter of
credit in favor of the landlord. The landlord will only be entitled to draw
under the letter of credit if the new tenant of the premises defaults during
the first year of its lease. If the new tenant does not default during the
first year, the letter of credit will be cancelled.
In March 1999, the parties entered into a series of transactions to end the
Company's involvement in CGMV. The Company (1) forgave CGMV's existing
indebtedness to the Company in the amount of approximately $2 million, (2)
assigned the Company's 80% ownership interest in CGMV to Editions, and (3)
paid $1 million to CGMV in exchange for termination of the agreement to loan
up to $20 million. As a result of the foregoing transactions, the Company was
relieved of its $20 million loan obligation to CGMV and also obtained, subject
to certain exceptions, releases from CGMV, Editions and Nicholas Callaway, and
indemnity rights from CGMV and Editions with respect to any known or unknown
claims arising from the operation of CGMV both prior to and after the
transactions. Additionally, CGMV and the Company entered into a license
agreement pursuant to which the Company is entitled to a royalty of 2% of net
sales of licensed golf books by CGMV through 2003 and 5% thereafter, subject
to the achievement of certain minimum sales levels.
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The Company, on the one hand, and Callaway Editions and Nicholas Callaway,
on the other, have had various disputes pending before the U.S. Patent and
Trademark Office regarding the registration of trademarks that include the
word "Callaway." At the same time as the CGMV transaction described above, the
Company also entered into a concurrent use agreement with Callaway Editions
and Nicholas Callaway resolving such trademark disputes. Pursuant to the
concurrent use agreement, the Company will retain the right to register and
use the "Callaway Golf" trademark in all classes of trade, while Callaway
Editions and Nicholas Callaway will be free to register and use the marks
"Callaway Editions," "Nicholas Callaway" and other marks associated with their
business. None of the parties will use its marks in a way that will be
confusing to the public as to source. Trademark applications inconsistent with
the concurrent use agreement will be withdrawn.
Ely Callaway did not participate in the negotiations of any of the above
described transactions with respect to CAM, CGMV, or the concurrent use
agreement and the terms thereof were approved by the Company's Board of
Directors without Mr. Callaway's participation.
The Company retained the law firm of Gibson, Dunn & Crutcher to provide
legal services to the Company during 1998, and anticipates that it will retain
Gibson, Dunn & Crutcher in 1999 as well. Mrs. Aulana L. Peters, a Director of
the Company, is a partner at Gibson, Dunn & Crutcher.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and greater than 10% shareholders to file
initial reports of ownership (on Form 3) and periodic changes in ownership (on
Forms 4 and 5) of Company securities with the Securities and Exchange
Commission and the New York Stock Exchange. Based solely on its review of
copies of such forms and such written representations regarding compliance
with such filing requirements as were received from its executive officers,
directors and greater than 10% shareholders (if any), the Company believes
that all such Section 16(a) filing requirements were complied with during
1998.
ANNUAL REPORT
A copy of the Company's Annual Report, including financial statements for
the years ended December 31, 1998 and December 31, 1997, is being mailed with
this Proxy Statement to shareholders of record on the Record Date, but such
report is not incorporated herein and is not deemed to be a part of this proxy
solicitation material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, WILL BE FURNISHED
WITHOUT CHARGE TO ANY PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED
UPON WRITTEN REQUEST TO THE COMPANY'S DIRECTOR OF INVESTOR RELATIONS AT
CALLAWAY GOLF COMPANY, 2285 RUTHERFORD ROAD, CARLSBAD, CALIFORNIA 92008.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP served as the Company's independent accountants
for 1998. One or more representatives of PricewaterhouseCoopers LLP are
expected to be present at the Annual
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Meeting, will have an opportunity to make a statement if they desire to do so,
and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's 2000
Annual Meeting of Shareholders in next year's proxy statement must, in
addition to other applicable requirements, cause their proposals to be
received in writing by the Company at its address set forth on the first page
of this Proxy Statement no later than November 22, 1999. Such proposals should
be addressed to the Company's Secretary and may be included in next year's
proxy statement if they comply with certain rules and regulations promulgated
by the Securities and Exchange Commission.
OTHER MATTERS
PRESENTED BY MANAGEMENT
Management knows of no matters other than those listed in the attached
Notice of the Annual Meeting which are likely to be brought before the Annual
Meeting. However, if any other matters should properly come before the Annual
Meeting or any adjournment thereof, the persons named in the enclosed proxy
will vote all proxies given to them in accordance with their best judgment of
such matters.
PRESENTED BY SHAREHOLDERS
The following discussion is based upon the assumption that the
Reincorporation Proposal is approved by the shareholders and that the Bylaws
of Callaway Golf Delaware would be applicable. In the event the
Reincorporation Proposal is not approved, the Bylaws of Callaway Golf
California contain similar, but not identical advance notice requirements,
which are summarized elsewhere in this Proxy Statement under "Reincorporation
in Delaware-The Charters of Callaway Golf California and Callaway Golf
Delaware-Requirement of Advance Notice."
Pursuant to the Bylaws of Callaway Golf Delaware, only such business shall
be conducted, and only such proposals shall be acted upon, at an annual
meeting of shareholders as are properly brought before the meeting. For
business to be properly brought before an annual meeting by a shareholder, in
addition to any other applicable requirements, timely notice of the matter
must be first given to the Secretary of the Company. To be timely, written
notice must be received at the principal executive offices of the Company not
less than 90 days nor more than 120 days prior to the scheduled meeting;
provided, however, that in the event that the date of the annual meeting is
more than 30 days before or more than 60 days after such anniversary date,
then notice of the proposed business matter must be received not less than 90
days nor more than 120 days prior to such annual meeting or 10 days following
the public announcement of the scheduled date of such annual meeting. Any
notice to the Secretary must include as to each matter the shareholder
proposes to bring before the meeting: (a) a brief description of the proposal
desired to be brought before the meeting and the reason for conducting such
business at the annual meeting, (b) the name and record address of the
shareholder proposing such business, (c) the class and number of shares of the
Company which are owned beneficially or of record by the shareholder on the
date of such shareholder notice, and (d) any material interest of the
shareholder in such proposal.
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Each shareholder is urged to complete, date, sign and promptly return the
enclosed proxy card. Any questions should be addressed to the Company's
Director of Investor Relations, at 2285 Rutherford Road, Carlsbad, California
92008, telephone (760) 931-1771.
/s/ Steven C. McCracken
Steven C. McCracken
Secretary
Carlsbad, California
April 1, 1999
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
OF CALLAWAY GOLF COMPANY,
A DELAWARE CORPORATION,
AND
CALLAWAY GOLF COMPANY,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated , 1999 (the "Agreement") is
between Callaway Golf Company, a Delaware corporation ("Callaway Golf
Delaware"), and Callaway Golf Company, a California corporation ("Callaway
Golf California"). Callaway Golf Delaware and Callaway Golf California are
sometimes referred to herein as the "Constituent Corporations."
RECITALS
A. Callaway Golf Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 243,000,000
shares, $.01 par value, of which 240,000,000 shares are designated "Common
Stock," and 3,000,000 shares are designated "Preferred Stock." Of the
Preferred Stock, 240,000 shares are designated Series A Junior Participating
Preferred Stock in connection with Callaway Golf California's Shareholders'
Rights Plan. The remaining shares of Preferred Stock of Callaway Golf Delaware
are undesignated as to series, rights, preferences, privileges or
restrictions. As of , 1999, 100 shares of Common Stock were issued and
outstanding, all of which are held by Callaway Golf California, and no shares
of Preferred Stock were issued and outstanding.
B. Callaway Golf California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
243,000,000 shares, $.01 par value, of which 240,000,000 are designated
"Common Stock," and 3,000,000 shares are designated "Preferred Stock." Of the
Preferred Stock, 240,000 shares of Preferred Stock are designated Series A
Junior Participating Preferred Stock in connection with Callaway Golf
California's Shareholders' Rights Plan. The remaining shares of Preferred
Stock of Callaway Golf California are undesignated as to series, rights,
preferences, privileges or restrictions. As of , 1999, shares of
Common Stock were issued and outstanding, and no shares of Preferred Stock
were issued and outstanding.
C. The Board of Directors of Callaway Golf California has determined that,
for the purpose of effecting the reincorporation of Callaway Golf California
in the State of Delaware, it is advisable and in the best interests of
Callaway Golf California and its shareholders that Callaway Golf California
merge with and into Callaway Golf Delaware upon the terms and conditions
herein provided.
D. The respective Boards of Directors of Callaway Golf Delaware and Callaway
Golf California have approved this Agreement and have directed that this
Agreement be submitted to a vote of their respective shareholders and executed
by the undersigned officers.
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NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Callaway Golf Delaware and Callaway Golf California hereby
agree, subject to the terms and conditions hereinafter set forth, as follows:
AGREEMENT
1. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
Callaway Golf California shall be merged with and into Callaway Golf Delaware
(the "Merger"); the separate existence of Callaway Golf California shall cease
and Callaway Golf Delaware shall survive the Merger and shall continue to be
governed by the laws of the State of Delaware; Callaway Golf Delaware shall
be, and is herein sometimes referred to as, the "Surviving Corporation;" and
the name of the Surviving Corporation shall be Callaway Golf Company.
1.2 Filing and Effectiveness. The Merger shall become effective when the
following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and approved by
the shareholders of each Constituent Corporation in accordance with the
requirements of the Delaware General Corporation Law and the California
General Corporation Law on , 1999 and , 1999, respectively;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed, acknowledged and
certified counterpart of this Agreement meeting the requirements of the
Delaware General Corporation Law shall have been filed with the Secretary
of State of the State of Delaware; and
(d) An executed Certificate of Merger or an executed counterpart of this
Agreement meeting the requirements of the California General Corporation
Law shall have been filed with the Secretary of State of the State of
California.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Callaway Golf California shall cease and Callaway Golf
Delaware, as the Surviving Corporation, (i) shall continue to possess all of
its assets, rights, powers and property as constituted immediately prior to
the Effective Date of the Merger, (ii) shall be subject to all actions
previously taken by its and Callaway Golf California's Boards of Directors,
(iii) shall succeed, without other transfer, to all of the assets, rights,
powers and property of Callaway Golf California in the manner as more fully
set forth in Section 259 of the Delaware General Corporation Law, (iv) shall
continue to be subject to all of its debts, liabilities and obligations as
constituted immediately prior to the Effective Date of the Merger, and (v)
shall succeed, without other transfer, to all of the debts, liabilities and
obligations of Callaway Golf California in the same manner as if Callaway Golf
Delaware had itself incurred them, all as more fully provided under the
applicable provisions of the Delaware General Corporation Law and the
California General Corporation Law.
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2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Callaway Golf Delaware as in effect immediately prior to the Effective Date of
the Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance
with the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Callaway Golf Delaware as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Callaway Golf
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their respective
successors shall have been duly elected and qualified or until as otherwise
provided by law, or the Certificate of Incorporation of the Surviving
Corporation or the Bylaws of the Surviving Corporation.
3. MANNER OF CONVERSION OF STOCK
3.1 Callaway Golf California Common Stock. Upon the Effective Date of the
Merger, each share of Callaway Golf California Common Stock, no par value,
issued and outstanding immediately prior thereto shall, by virtue of the
Merger and without any action by the Constituent Corporations, the holder of
such shares or any other person, be changed and converted into and exchanged
for one fully paid and nonassessable share of Common Stock, $.01 par value, of
the Surviving Corporation.
3.2 Callaway Golf California Options and Stock Purchase Rights. Upon the
Effective Date of the Merger, the Surviving Corporation shall assume and
continue the stock option plans (including without limitation the 1996 Stock
Option Plan and the Non-Employee Directors Stock Option Plan) and all other
employee benefit plans (including without limitation the 1995 Employee Stock
Purchase Plan) of Callaway Golf California. Each outstanding and unexercised
option or other right to purchase or security convertible into Callaway Golf
California Common Stock shall become an option or right to purchase or a
security convertible into the Surviving Corporation's Common Stock on the
basis of one share of the Surviving Corporation's Common Stock for each share
of Callaway Golf California Common Stock issuable pursuant to any such option,
stock purchase right or convertible security, on the same terms and conditions
and at an exercise price per share equal to the exercise price applicable to
any such Callaway Golf California option, stock purchase right or convertible
security at the Effective Date of the Merger. Except as set forth in Section
3.3, there are no options, purchase rights for or securities convertible into
Preferred Stock of Callaway Golf California.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options, stock purchase rights or
convertible securities equal to the number of shares of Callaway Golf
California Common Stock so reserved immediately prior to the Effective Date of
the Merger.
3.3 Callaway Golf California Preferred Share Purchase Rights. Upon the
Effective Date of the Merger, the Surviving Corporation shall assume and
convert the Series A Preferred Stock Purchase Rights declared by Callaway Golf
California on June 10, 1995 and the rights and obligations of Callaway Golf
California pursuant to the Rights Agreement dated as of June 21, 1995, by and
among Callaway Golf California and ChaseMellon Shareholder Services LLC (the
"Rights Agreement"). The Merger shall not be deemed a "Triggering Event" as
such term is defined in the Rights Agreement.
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A number of shares of the Surviving Corporation's Common Stock and Series A
Junior Participating Preferred Stock shall be reserved for issuance upon the
exercise of stock purchase rights and convertible securities equal to the
number of shares of Callaway Golf California Common Stock and Series A Junior
Participating Preferred Stock so reserved immediately prior to the Effective
Date of the Merger.
3.4 Callaway Golf Delaware Common Stock. Upon the Effective Date of the
Merger, each share of Common Stock, $.01 par value, of Callaway Golf Delaware
issued and outstanding immediately prior thereto shall, by virtue of the
Merger and without any action by Callaway Golf Delaware, the holder of such
shares or any other person, be canceled and returned to the status of
authorized but unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of Callaway Golf
California Common Stock may, at such stockholder's option, surrender the same
for cancellation to ChaseMellon Shareholder Services, L.L.C. as exchange agent
(the "Exchange Agent"), and each such holder shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of
shares of the Surviving Corporation's Common Stock into which such holders'
shares of Callaway Golf California Common Stock were converted as herein
provided. Unless and until so surrendered, each outstanding certificate
theretofore representing shares of Callaway Golf California Common Stock shall
be deemed for all purposes to represent the number of whole shares of the
Surviving Corporation's Common Stock into which such shares of Callaway Golf
California Common Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any shares of stock represented by such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to the Surviving Corporation
or the Exchange Agent, have and be entitled to exercise any voting and other
rights with respect to and to receive dividends and other distributions upon
the shares of Common Stock of the Surviving Corporation represented by such
outstanding certificate as provided above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Callaway Golf
California so converted and given in exchange therefor, unless otherwise
determined by the Board of Directors of the Surviving Corporation in
compliance with applicable laws.
If any certificate for shares of Callaway Golf Delaware stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise
in proper form for transfer, that such transfer otherwise be proper and that
the person requesting such transfer pay to Callaway Golf Delaware or the
Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Callaway Golf
Delaware that such tax has been paid or is not payable.
4. GENERAL
4.1 Covenants of Callaway Golf Delaware. Callaway Golf Delaware covenants
and agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California General Corporation Law;
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(b) File any and all documents with the California Franchise Tax Board
necessary for the assumption by Callaway Golf Delaware of all of the
franchise tax liabilities of Callaway Golf California; and
(c) Take such other actions as may be required by the California General
Corporation Law.
4.2 Further Assurances. From time to time, as and when required by Callaway
Golf Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Callaway Golf California such deeds and other
instruments, and there shall be taken or caused to be taken by Callaway Golf
Delaware and Callaway Golf California such further and other actions, as shall
be appropriate or necessary in order to vest or perfect in or conform of
record or otherwise by Callaway Golf Delaware the title to and possession of
all the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Callaway Golf California and otherwise to carry
out the purposes of this Agreement, and the officers and directors of Callaway
Golf Delaware are fully authorized in the name and on behalf of Callaway Golf
California or otherwise to take any and all such action and to execute and
deliver any and all such deeds and other instruments.
4.3 Abandonment. At any time before the filing of this Agreement with the
Secretary of State of the State of Delaware, this Agreement may be terminated
and the Merger may be abandoned for any reason whatsoever by the Board of
Directors of either Callaway Golf California or Callaway Golf Delaware, or
both, notwithstanding the approval of this Agreement by the shareholders of
Callaway Golf California or by the sole stockholder of Callaway Golf Delaware,
or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations may
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretaries of State of the States of
California and Delaware, provided that an amendment made subsequent to the
adoption of this Agreement by the shareholders of either Constituent
Corporation shall not: (1) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of such
Constituent Corporation, (2) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the Merger, or
(3) alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the holders of any class of shares
or series thereof of such Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving Corporation in
the State of Delaware is located at 9 East Loockerman Street, Dover, Delaware
19901, County of Kent, and National Registered Agents, Inc. is the registered
agent of the Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation 2285 Rutherford Road,
Carlsbad, California 92008 and copies thereof will be furnished to any
shareholder of either Constituent Corporation, upon request and without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 Counterparts. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, this Agreement, having first been approved by resolutions
of the Boards of Directors of Callaway Golf Delaware and Callaway Golf
California, is hereby executed on behalf of each of such two corporations and
attested by their respective officers thereunto duly authorized.
CALLAWAY GOLF COMPANY,
a Delaware corporation
By: _________________________________
David A. Rane,
Executive Vice President,
Administration and Planning,
and Chief Financial Officer
ATTEST:
_____________________________________
Steven C. McCracken,
Executive Vice President, Licensing,
Chief Legal Officer and Secretary
CALLAWAY GOLF COMPANY,
a California corporation
By: _________________________________
David A. Rane,
Executive Vice President,
Administration and Planning,
and Chief Financial Officer
ATTEST:
_____________________________________
Steven C. McCracken,
Executive Vice President, Licensing,
Chief Legal Officer and Secretary
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APPENDIX B
CERTIFICATE OF INCORPORATION
OF
CALLAWAY GOLF COMPANY
ARTICLE I
Name of Corporation
The name of this Corporation is Callaway Golf Company.
ARTICLE II
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, in the City of Dover 19901, County of
Kent, and the name of its registered agent at that address is National
Registered Agents, Inc.
ARTICLE III
Purpose
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware (the "GCL").
ARTICLE IV
Authorized Capital Stock
SECTION 1. Number of Authorized Shares. The Corporation shall be authorized
to issue two classes of shares of stock to be designated, respectively,
"Common Stock" and "Preferred Stock." The total number of shares which the
Corporation shall have authority to issue is Two Hundred Forty-Three million
(243,000,000), of which Two Hundred Forty million (240,000,000) shares shall
be common stock having a par value of $0.01 per share (the "Common Stock"),
and Three million (3,000,000) shares shall be preferred stock having a par
value of $0.01 per share (the "Preferred Stock"). Of the authorized shares of
Preferred Stock, Two Hundred Forty Thousand (240,000) shares shall be
designated Series A Junior Participating Preferred Stock (hereinafter referred
to as the "Series A Preferred Stock").
SECTION 2. Common Stock. The Board of Directors of the Corporation (the
"Board of Directors") may authorize the issuance of shares of Common Stock
from time to time. Shares of Common Stock that are redeemed, purchased or
otherwise acquired by the Corporation may be reissued except as otherwise
provided by law.
SECTION 3. Preferred Stock. The Board of Directors may authorize the
issuance of shares of Preferred Stock from time to time in one or more series.
Shares of Preferred Stock that are redeemed, purchased or otherwise acquired
by the Corporation may be reissued except as otherwise provided by
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law. The Board of Directors is hereby authorized to fix or alter the
designations, powers and preferences, and relative, participating, optional or
other rights, if any, and qualifications, limitations or restrictions thereof,
including without limitation, dividend rights, (and whether dividends are
cumulative), conversion rights, if any, voting rights (including the number of
votes, if any, per share, as well as the number of members, if any, of the
Board of Directors or the percentage of members, if any, of the Board of
Directors each class or series of Preferred Stock may be entitled to elect),
rights and terms of redemption (including sinking fund provisions, if any),
redemption price and liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, and to increase (but not above the total number of
authorized shares of the class) or decrease (but not below the number of
shares of such series then outstanding) the number of shares of any such
series subsequent to the issuance of shares of such series.
The relative rights, preferences, privileges and restrictions granted to the
Series A Preferred Stock are as follows:
A. Dividends and Distributions.
(i) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on the 15th day of
January, April, July and October and in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to, subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends other distributions
other than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock of the Corporation since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time after the issuance of any shares of Series A
Preferred Stock (a) declare any dividend on Common Stock payable in shares
of Common Stock, (b) subdivide the outstanding Common Stock or (c) combine
the outstanding Common Stock into a smaller number of shares, then in each
such case the amount to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (i) above concurrently
with any declaration of a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(iii) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred
Stock, unless the date of issue of such shares is prior to the
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record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events
such dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding. The Board of Directors
may fix a record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to
the date fixed for the payment thereof.
B. Voting Rights. The holders of shares of Series A Preferred Stock shall
have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time after the
issuance of any shares of Series A Preferred Stock (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(ii) Except as otherwise provided herein or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(iii) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
C. Certain Restrictions.
(i) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a
share or fraction of a share of Series A Preferred Stock unless
concurrently therewith it shall declare a dividend on the Series A
Preferred Stock as required by subsection A hereof.
(ii) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in subsection A have
been declared but not paid, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Corporation
shall not
(a) declare or pay dividends on, make any other distribution on, or
redeem or purchase
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or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock;
(b) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such
shares are then entitled;
(c) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
A Preferred Stock;
(d) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(iii) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (i) of this
subsection C, purchase or otherwise acquire such shares at such time and in
such manner.
D. Reacquired Shares. Any shares of Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject
to the conditions and restrictions on issuance set forth herein.
E. Liquidation, Dissolution or Winding Up.
(i) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have
received $1,000 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date
of such payment (the "Series A Liquidation Preference"). Following the
payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Preferred Stock unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (a) the Series A Liquidation
Preference by (b) 1,000 (as appropriately adjusted as set forth in
subparagraph (iii) below to reflect such events as stock splits, stock
dividends and recapitalizations with respect to the Common Stock) (the
"Adjustment Number"). Following the payment of the full amount of the
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Series A Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Preferred Stock and Common Stock,
respectively, holders of Series A Preferred Stock and holders of shares of
Common Stock shall receive their ratable and proportionate share of
remaining assets to be distributed in the ratio of the Adjustment Number to
one (1) with respect to such Preferred Stock and Common Stock, on a per
share basis, respectively.
(ii) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series A Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall
be distributed ratably to the holders of Common Stock.
(iii) In the event the Corporation shall at any time after January 1,
1999 (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event shall
be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
F. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of Series A
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set
forth) equal to 1,000 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time after January 1, 1999 (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series
A Preferred Stock shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
G. No Redemption. The shares of Series A Preferred Stock shall not be
redeemable.
H. Ranking. The Series A Preferred Stock shall rank junior to all other
series of the Corporation's preferred stock, if any, as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
I. Amendment. The Certificate of Incorporation of the Corporation shall not
be further amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Preferred Stock, voting
separately as a class.
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J. Fractional Shares. Series A Preferred Stock may be issued in fractions of
a share, which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate
in distributions and to have the benefit of all other rights of holders of
Series A Preferred Stock.
ARTICLE V
Incorporator
The name and mailing address of the incorporator of the Corporation are as
follows:
Steven C. McCracken
2285 Rutherford Road
Carlsbad, CA 92008
ARTICLE VI
Amendment of Corporate Documents
SECTION 1. Certificate of Incorporation. The Corporation reserves the right
to alter, amend, repeal or rescind any provision contained in this Certificate
of Incorporation in any manner now or hereafter prescribed by law, and all
rights conferred on stockholders herein are granted subject to this
reservation.
SECTION 2. Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend, and rescind the bylaws of the Corporation.
ARTICLE VII
Directors
SECTION 1. Number of Directors. The number of directors shall be fixed in
the manner provided in the bylaws of the Corporation.
SECTION 2. Election of Directors. Elections of Directors need not be by
written ballot unless the bylaws of the Corporation shall so provide.
ARTICLE VIII
Limitation of Director Liability
To the fullest extent permitted by the GCL, as the same exists or may
hereafter be amended (provided that the effect of any such amendment shall be
prospective only) and as interpreted by the courts of the State of Delaware
("Delaware Law"), a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director.
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ARTICLE IX
Nonapplicability of Section 203
The provisions of Section 203 of the GCL shall not apply to the Corporation.
ARTICLE X
Stockholder Action by Written Consent
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. In the case of
election of directors, such consent shall be effective only if signed by the
holders of all outstanding shares entitled to vote for the election of
directors; provided, however, that a director may be elected at any time to
fill a vacancy on the Board of Directors (other than a vacancy created by the
removal of a director) that has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares
entitled to vote for the election of directors. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE XI
Cumulative Voting
Each holder of stock entitled to vote for the election of directors shall be
entitled to as many votes as shall equal the number of votes which such
stockholder would be entitled (but for the provisions of this Article) to cast
for the election of directors with respect to such stockholder's shares of
stock multiplied by the number of directors to be elected, and such holder may
cast all of such votes for a single director or for any two or more directors
as such stockholder may see fit.
ARTICLE XII
Creditor Compromise or Arrangement
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions
of Section 291 of the GCL or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under the
provisions of Section 279 of the GCL order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this
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Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may
be, and also on this Corporation.
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is his act and deed.
Dated: , 1999
_____________________________________
Steven C. McCracken, Incorporator
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APPENDIX C
BYLAWS
OF
CALLAWAY GOLF COMPANY
(A DELAWARE CORPORATION)
ARTICLE I
Corporate Offices
1.1 Registered Office
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 Other Offices
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
Meetings Of Stockholders
2.1 Place of Meetings
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 Annual Meeting
(a) The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. At the meeting, directors
shall be elected, and any other proper business may be transacted.
(b) Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
corporation's notice of meeting, (ii) by or at the direction of the board of
directors or (iii) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this bylaw, who is
entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 2.2.
(c) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of Section 2.2(b)
above, the stockholder must have given timely notice thereof in writing to the
secretary of the corporation and such other business must be a proper matter
for stockholder action. To be timely, a stockholder's notice shall be
delivered to the secretary at the principal executive offices of the
corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be
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timely must be so delivered not earlier than the close of business on the
120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, for reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (x) the name
and address of such stockholder, as they appear on the corporation's books,
and of such beneficial owner and (y) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
2.3 Special Meeting
(a) A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or
by one or more stockholders holding shares in the aggregate entitled to cast
not less than ten percent (10%) of the votes at that meeting. No other person
or persons are permitted to call a special meeting.
(b) For a special meeting of stockholders to be properly called by a
stockholder or stockholders, the request must be in writing, specifying the
date and time of such meeting and the information set forth in Section 2.3(c)
hereof, and must be delivered to, or mailed and received by, the chairman of
the board, the president or the secretary of the corporation not less than
thirty-five (35) nor more than sixty (60) days prior to the date requested for
such meeting. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Section 2.4 hereof, that a meeting will be held at the time
requested by the person or persons calling the meeting. If the notice is not
given within twenty (20) days after receipt of the request, the person or
persons requesting the meeting may give the notice.
(c) Any request for a special meeting submitted by a stockholder pursuant to
Section 2.3(b) hereof shall set forth as to each matter the stockholder
proposes to bring before the special meeting the information required by
Section 2.2(c) above with respect to director nominees or other proposed
business, as the case may be.
2.4 Notice of Stockholders' meetings
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.6 of these bylaws not less than ten (10) nor more
than sixty (60) days before the date of the meeting. The notice shall specify
the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board
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of directors, at the time of giving the notice, intends to present for action
by the stockholders (but any proper matter may be presented at the meeting for
such action). The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees who, at the time of the
notice, the board intends to present for election.
2.5 Conduct of Meeting
The board of directors may adopt by resolution such rules and regulations
for the conduct of the meeting of stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations as adopted
by the board, the chairman of any meeting of stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do
all such acts as, in the judgment of such chairman, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures, whether
adopted by the board or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders
of record of the corporation, their duly authorized and constituted proxies or
such other persons as the chairman of the meeting shall determine; (iv)
restrictions on entry to the meeting after the time fixed for the commencement
thereof; and (v) limitations on the time allotted to questions or comments by
participants. Unless and to the extent determined by the board or the chairman
of the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
2.6 Manner of Giving Notice; Affidavit of Notice
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telefacsimile or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent
by telefacsimile or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 Quorum
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman
of the meeting or (ii) the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting in
accordance with this Section 2.7.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the laws of the State of
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Delaware or of the certificate of incorporation or these bylaws, a different
vote is required, in which
case such express provision shall govern and control the decision of the
question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 Adjourned Meeting; Notice
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 Voting
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation
Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver of Notice
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
2.11 Stockholder Action by Written Consent
Except as may be otherwise provided in the certificate of incorporation, any
action which may be taken at any annual or special meeting of stockholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be
necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. In the case of
election of directors, if the certificate of incorporation so provides, such a
consent shall be effective only if signed by the holders of all outstanding
shares entitled to vote for the election of directors; provided, however, that
a director may be elected at any time to fill a vacancy on
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the board of directors (other than a vacancy created by the removal of a
director) that has not been filled by the directors, by the written consent of
the holders of a majority of the outstanding shares entitled to vote for the
election of directors. All such consents shall be filed with the secretary of
the corporation and shall be maintained in the corporate records. Any
stockholder giving a written consent, or the stockholder's proxy holders, may
revoke the consent by a writing received by the secretary of the corporation
before written consents of the number of shares required to authorize the
proposed action have been filed with the secretary.
If the consents of all stockholders entitled to vote have not been solicited
in writing, and if the unanimous written consent of all such stockholders
shall not have been received, the secretary shall give prompt notice of the
corporate action approved by the stockholders without a meeting.
2.12 Record Date for Stockholder Notice; Voting
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the board of directors and which shall not be more than
sixty (60) days nor less than ten (10) days before the date of any such
meeting, nor more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the board of directors in the case of an
action in writing without a meeting, and in such event only stockholders of
record on the date so fixed are entitled to notice and to vote,
notwithstanding any transfer of any shares on the books of the corporation
after the record date.
If the board of directors does not so fix a record date, (a) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held, and (b) the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be the first
date on which a signed written consent setting forth the action to be taken is
delivered to the corporation at its principal place of business or to the
corporation's registered office in Delaware.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned
meeting, but the board of directors shall fix a new record date if the meeting
is adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1 of
these bylaws.
2.13 Proxies
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized
by a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission,
telefacsimile or otherwise) by the stockholder or the stockholder's attorney-
in-fact. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Section 212(e) of the
General Corporation Law of Delaware.
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2.14 List of Stockholders Entitled to Vote
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting,
or, if not so specified, at the place where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
ARTICLE III
Directors
3.1 Powers
Subject to the provisions of the General Corporation Law of Delaware and any
limitations in the certificate of incorporation and these bylaws relating to
action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 Number of Directors
The board of directors shall consist of not less than six (6) nor more than
fifteen (15) members, with the exact number within that range to be set from
time to time exclusively by resolution of the board of directors.
3.3 Election and Term of Office of Directors
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to
fill a vacancy, shall hold office until the expiration of the term for which
elected and until a successor has been elected and qualified.
3.4 Resignation and Vacancies
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless
the notice specifies a later time for that resignation to become effective. If
the resignation of a director is effective at a future time, the board of
directors may elect a successor to take office when the resignation becomes
effective.
All vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; provided, that whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority
of the directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected.
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3.5 Place of Meetings; Meetings by Telephone
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 Regular Meetings
Regular meetings of the board of directors may be held without notice if the
times of such meetings are fixed by the board of directors. If any regular
meeting day shall fall on a legal holiday, then the meeting shall be held next
succeeding full business day.
3.7 Special Meetings; Notice
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president or any two
directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telefacsimile, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or telefacsimile, it shall be delivered personally
or by telephone or telefacsimile at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone or telefacsimile may be communicated either to the director or to a
person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice
need not specify the purpose or the place of the meeting, if the meeting is to
be held at the principal executive office of the corporation.
3.8 Quorum
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
the certificate of incorporation and other applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
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3.9 Waiver of Notice
Notice of a meeting need not be given to any director (i) who signs a waiver
of notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or (ii) who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice
to such directors. All such waivers, consents, and approvals shall be filed
with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special
meeting of the board of directors.
3.10 Adjournment
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 Notice of Adjournment
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.7 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.12 Board Action by Written Consent Without a Meeting
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of
the board of directors. Such written consent and any counterparts thereof
shall be filed with the minutes of the proceedings of the board.
3.13 Fees and Compensation of Directors
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall
not be construed to preclude any director from serving the corporation in any
other capacity as an officer, agent, employee or otherwise and receiving
compensation for those services.
3.14 Approval of Loans to Officers
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of
its subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares
of stock of the corporation. Nothing contained in this section shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
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ARTICLE IV
Committees
4.1 Committees of Directors
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have
and may exercise all the powers and authority of the board, but no such
committee shall have the power or authority to:
(a) approve or adopt, or recommend to the stockholders, any action or
matter expressly required by the Delaware General Corporation Law to be
submitted to stockholders for approval; or
(b) adopt, amend or repeal any bylaw of the corporation.
4.2 Meetings and Action of Committees
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those
bylaws as are necessary to substitute the committee and its members for the
board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors, and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
4.3 Committee Minutes
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when requested.
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ARTICLE V
Officers
5.1 Officers
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 Election of Officers
The officers of the corporation, except such officers as may be appointed in
accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer
under any contract of employment.
5.3 Subordinate Officers
The board of directors may appoint, or may empower the president to appoint,
such other officers as the business of the corporation may require, each of
whom shall hold office for such period, have such authority, and perform such
duties as are provided in these bylaws or as the board of directors may from
time to time determine.
5.4 Removal and Resignation of Officers
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except
in case of an officer chosen by the board of directors, by any officer upon
whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.
5.5 Vacancies in Offices
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these bylaws for regular appointments to that office.
5.6 Chairman of the Board
The chairman of the board, if such an officer be elected, shall, if present,
preside at meetings of the board of directors and exercise and perform such
other powers and duties as may from time to time be assigned by the board of
directors or as may be prescribed by these bylaws. If there is no president,
then the chairman of the board shall also be the chief executive officer of
the corporation and shall have the powers and duties prescribed in Section 5.7
of these bylaws.
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5.7 President
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation.
The president shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board, at all meetings of the
board of directors. The president shall have the general powers and duties of
management usually vested in the office of president of a corporation, and
shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.
5.8 Vice Presidents
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the board of directors, these
bylaws, the president or the chairman of the board.
5.9 Secretary
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or
by these bylaws, shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 Chief Financial Officer
The chief financial officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
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The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. The chief financial officer shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all transactions effected as chief financial officer and of
the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the board of directors
or these bylaws.
ARTICLE VI
Indemnification of Directors, Officers, Employees,
and Other Agents
6.1 Indemnification of Directors and Officers
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may
hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually
and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding in which such person was or is a party
or is threatened to be made a party by reason of the fact that such person is
or was a director or officer of the corporation. For purposes of this Section
6.1, a "director" or "officer" of the corporation shall mean any person (i)
who is or was a director or officer of the corporation, (ii) who is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that
payment of expenses incurred by a director or officer of the corporation in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should ultimately be determined that the director
of officer is not entitled to be indemnified under this Section 6.1 or
otherwise.
This Section shall create a right of indemnification for each person
referred to above, whether or not the proceeding to which the indemnification
relates arose in whole or in part prior to the adoption of this Section, and
in the event of death, such right shall extend to such person's legal
representatives. The rights conferred on any person by this Section shall not
be exclusive of any other rights which such person may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors
or otherwise. Any repeal or modification of the foregoing provisions of this
Section shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
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6.2 Indemnification of Others
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding, in which such person was or is a party or is threatened to be
made a party by reason of the fact that such person is or was an employee or
agent of the corporation. For purposes of this Section 6.2, an "employee" or
"agent" of the corporation (other than a director or officer) shall mean any
person (i) who is or was an employee or agent of the corporation, (ii) who is
or was serving at the request of the corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was an employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.3 Insurance
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE VII
Records and Reports
7.1 Maintenance and Inspection of Records
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
7.2 Inspection by Directors
Any director shall have the right to examine (and to make copies of) the
corporation's stock Any director shall have the right to examine (and to make
copies of) the corporation's stock ledger, a list of its stockholders and its
other books and records for a purpose reasonably related to his or her
position as a director.
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7.3 Representation of Shares of Other Corporations
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise
on behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power
of attorney duly executed by such person having the authority.
7.4 Certification and Inspection of Bylaws
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VIII
General Matters
8.1 Record Date for Purposes Other Than Notice and Voting
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except
as otherwise provided in the General Corporation Law of Delaware.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close
of business on the day on which the board adopts the applicable resolution.
8.2 Checks; Drafts; Evidences of Indebtedness
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders
for payment of money, notes or other evidences of indebtedness that are issued
in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.3 Corporate Contracts and Instruments: How Executed
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
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8.4 Stock Certificates; Transfer; Partly Paid Shares
The shares of the corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or any vice
president, and by the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such
facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly paid
and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation
in the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation
shall declare a dividend upon partly paid shares of the same class, but only
upon the basis of the percentage of the consideration actually paid thereon.
8.5 Special Designation on Certificates
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations
or restrictions of such preferences and/or rights shall be set forth in full
or summarized on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock; provided, however,
that, except as otherwise provided in Section 202 of the General Corporation
Law of Delaware, in lieu of the foregoing requirements there may be set forth
on the face or back of the
C-15
<PAGE>
certificate that the corporation shall issue to represent such class or series
of stock a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, the designations, the preferences and
the relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
8.6 Lost Certificates
Except as provided in this Section 8.6, no new certificates for shares shall
be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 Transfer Agents and Registrars
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated
bank or trust company -- either domestic or foreign, who shall be appointed at
such times and places as the requirements of the corporation may necessitate
and the board of directors may designate.
8.8 Construction; Definitions
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
Amendments
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which
the repeal was enacted or the filing of the operative written consent(s) shall
be stated in said book.
C-16
<PAGE>
[MAP]
Map not to scale
1999 Callaway Golf
Shareholders Meeting
Wednesday, May 5, 10:00 a.m.
2180 Rutherford Road
Carlsbad, California 92008
From I-5:
Exit on Palomar Airport Road -- East
Left on College Blvd.
Right on Aston Ave.
Right on Rutherford Road
From I-15:
Take 78 - West
Exit on San Marcos Blvd. - South
(San Marcos Blvd. becomes
Palomar Airport Road)
Right on El Camino Real
Left on Faraday Ave.
Left on Rutherford Road
<PAGE>
CALLAWAY GOLF COMPANY
The undersigned shareholder of CALLAWAY GOLF COMPANY hereby appoints
STEVEN C. McCRACKEN, DAVID RANE, or either of them, proxies of the undersigned,
each with full power to act without the other and with the power of
substitution, to represent the undersigned at the Annual Meeting of
Shareholders of Callaway Golf Company to be held at 2180 Rutherford Road,
Carlsbad, California 92008, on May 5, 1999 at 10:00 a.m. (California time), and
at any adjournments or postponements thereof, and to vote all shares of stock
of the Company standing in the name of the undersigned with all the powers the
undersigned would possess if personally present, in accordance with the
instructions below and on the reverse hereof, and in their discretion upon such
other business as may properly come before the meeting; provided, however, that
such proxies, or either of them, shall have the power to cumulate votes and
distribute them among the nominees listed in the manner directed herein, as they
see fit, and to drop any such nominees, in order to ensure the election of the
greatest number of such nominees.
THIS PROXY VOTING INSTRUCTION CARD WHEN PROPERLY EXECUTED WILL BE VOTED
IN THE MANNER DIRECTED HEREBY BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY/VOTING INSTRUCTION CARD WILL BE VOTED FOR THE NOMINEES LISTED
ON THE REVERSE SIDE HEREOF, FOR PROPOSAL 2 AND FOR PROPOSAL 3. IF YOU HAVE A
BENEFICIAL INTEREST IN SHARES HELD BY THE 401(K) PLAN SPONSORED BY CALLAWAY GOLF
COMPANY, THEN THIS CARD ALSO CONSTITUTES YOUR VOTING INSTRUCTIONS TO THE TRUSTEE
OF SUCH PLAN AND IF YOU DID NOT SIGN AND RETURN THIS CARD, SUCH SHARES WILL BE
VOTED BY THE TRUSTEE FOR THE NOMINEES LISTED ON THE REVERSE HEREOF, FOR PROPOSAL
2 AND FOR PROPOSAL 3. THE TRUSTEE CANNOT GUARANTEE THAT VOTING INSTRUCTIONS
RECEIVED AFTER MAY 3, 1999 WILL BE COUNTED.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
R.S.V.P./COMMENTS/ADDRESS CHANGE: PLEASE MARK R.S.V.P./COMMENT/ADDRESS CHANGE
BOX ON THE REVERSE SIDE
CONTINUED AND TO BE DATED AND SIGNED, ON OTHER SIDE
................................................................................
FOLD AND DETACH HERE
<PAGE>
THIS PROXY/VOTING INSTRUCTION CARD IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY. YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH
OF THE PROPOSALS.
1. ELECTION OF DIRECTORS
Nominees: 01 Ely Callaway, 02 William C. Baker, 03 Vernon E. Jordan, Jr., 04
Yotaro Kobayashi, 05 Bruce Parker, 06 Aulana L. Peters, 07 Frederick
R. Port, 08 Richard Rosenfield, 09 William A. Schreyer, and 10
Charles J. Yash
FOR all nominees listed WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all nominees listed
(Instruction: To withhold
authority to vote for any
individual nominee, write the
nominee's name on the line
provided below.
-------------------------------
2. Proposal to approve the reincorporation of Callaway Golf Company as a
Delaware corporation.
FOR AGAINST ABSTAIN
3. Proposal to approve the adoption of the Callaway Golf Company 1999 Employee
Stock Purchase Plan
FOR AGAINST ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
R.S.V.P./COMMENTS/ADDRESS CHANGE
Please mark this box and complete the I PLAN TO
Reverse side if you are bringing others to ATTEND
The meeting or if you have written MEETING
Comments/address change.
The undersigned hereby acknowledges receipt of the Notice
of Annual Meeting of Shareholders to be held May 5, 1999
and the Proxy Statement furnished herewith.
***IF YOU WISH TO VOTE BY TELEPHONE,
PLEASE READ THE INSTRUCTIONS BELOW***
Signature_______________________ Signature___________________________Date_______
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
................................................................................
FOLD AND DETACH HERE
<PAGE>
March 31, 1999
TO: PARTICIPANTS IN THE CALLAWAY GOLF COMPANY 1995 EMPLOYEE STOCK PURCHASE PLAN
AND EMPLOYEE STOCK OPTION PLANS
The Company has placed 5,300,000 shares of Common Stock into a Grantor
Stock Trust, where it is being held to fund benefits under, among other things,
the above stock plans. As a participant in one or more of the stock plans, you
have certain rights to direct the voting of these shares at the upcoming Annual
Meeting. Your voting rights are based upon the number of unexercised options
you hold under the Stock Option Plan and/or shares you purchased during the last
year under the Employee Stock Purchase Plan.
To exercise your voting rights, please complete the enclosed green Voting
Instruction Card. It directs the Trustee, Sanwa Bank of California, how to
vote. You must return the Voting Card to the Trustee using the enclosed return
envelope prior to the Annual Meeting, which will be held on May 5, 1999, in
order to exercise your voting rights under the Trust. The Trustee cannot
guarantee that voting instructions received after May 3, 1999 will be counted.
For the reasons stated in the enclosed Proxy Statement for the Annual
Meeting, your Board of Directors recommends a vote "FOR" all of the nominees for
director and the other proposals set forth on the Voting Instruction Card.
You may get more than one package of materials regarding the upcoming
Annual Meeting. For example, if you also are a shareholder, separate from these
stock plans, you will receive a separate mailing containing a white Proxy Card
or Voting Instruction Card for these shares. YOU MUST SEPARATELY VOTE THE
SHARES HELD BY YOU AS A SHAREHOLDER OR 401(K) PLAN PARTICIPANT BY USING THE
PROXY CARD OR VOTING INSTRUCTION CARD YOU RECEIVE WITH THOSE PACKAGES. Please
return any Voting Instruction Card and Proxy Card you might receive separately
in the separate return envelopes provided with each package.
As noted above, you may receiving more than one copy of the Annual Report
and Proxy Statement. The law requires that we mail these informational
materials with each voting card. We regret any inconvenience this may cause.
If you wish, you can return any extra copies to the Company's Legal Department
where they will be re-used or recycled.
If you need further assistance, please contact Krista Mallory at
(760) 931-1771. Thank you for your cooperation.
Sincerely,
Ely Callaway
Chairman of the Board
and Chief Executive Officer
<PAGE>
CALLAWAY GOLF COMPANY
STOCK PLAN PARTICIPANT VOTING INSTRUCTION CARD
TO: SANWA BANK CALIFORNIA
TRUSTEE OF THE CALLAWAY GOLF COMPANY GRANTOR STOCK TRUST
With respect to the voting at the Annual Meeting of Shareholders of Callaway
Golf Company to be held on May 5, 1999, or any adjournment or postponement
thereof, the undersigned participant in the Callaway Golf Company Stock Option
Plans and/or 1995 Employee Stock Purchase Plan hereby directs Sanwa Bank
California, as Trustee of the Callaway Golf Company Grantor Stock Trust, to
vote all of the undersigned's votes to which the undersigned is entitled to
direct under the Trust in accordance with the following instructions:
THE VOTES TO WHICH THE UNDERSIGNED STOCK PLAN PARTICIPANT IS ENTITLED TO DIRECT
UNDER THE TRUST WILL BE VOTED AS DIRECTED BELOW AND ON THE REVERSE SIDE HEREOF,
AND WILL BE VOTED FOR ALL NOMINEES FOR DIRECTORS AND FOR PROPOSALS 2 AND 3 IF
NO INSTRUCTIONS ARE INDICATED.
1. ELECTION OF DIRECTORS
Nominees: Ely Callaway, William C. Baker, Vernon E. Jordan, Jr., Yotaro
Kobayashi, Bruce Parker, Aulana L. Peters, Frederick R. Port, Richard
Rosenfield, William A. Schreyer and Charles J. Yash
[_] FOR all nominees listed (except as marked to the contrary)
[_] WITHHOLD AUTHORITY to vote for all nominees listed
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW).
- --------------------------------------------------------------------------------
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
(Continued and to be signed on
other side)
PLEASE
MARK
YOUR
VOTES
AS
THIS
EXAMPLE [X]
2. Proposal to approve reincorporation of Callaway Golf Company as a Delaware
corporation.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve the adoption of the Callaway Golf Company 1999 Employee
Stock Purchase Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, Steven C. McCracken and David Rane, or either of them,
are authorized to vote upon such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The undersigned hereby acknowledges
receipt of the Notice of Annual Meeting
of Shareholders to be held May 5, 1999
and the Proxy Statement furnished
herewith.
Signature _____________________________
Please sign exactly as name
appears hereon.
Date _____________________________, 1999
PLEASE MARK, DATE, SIGN AND RETURN THIS
VOTING INSTRUCTION CARD PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE. THE TRUSTEE
CANNOT GUARANTEE THAT INSTRUCTIONS
RECEIVED AFTER MAY 3, 1999 WILL BE
COUNTED.
